##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549







FORM 10-Q







(Mark One)



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



For the quarterly period ended July 3, 2009



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







VARIAN, INC.

(Exact Name of Registrant as Specified in its Charter)







|                                                              |  |                                 
|------------------------------------------------------------- |  | --------------------------------
|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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:



|                                                                       |  |                             
|---------------------------------------------------------------------- |  | ----------------------------
|Large accelerated filer  x                                             |  | Accelerated filer   ̈        
|Non-accelerated filer   ̈ (Do not check if a smaller reporting company) |  | Smaller reporting company   ̈



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



The number of shares of the
registrants common stock outstanding as of August 7, 2009 was 28,904,478.









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##### Table of Contents

VARIAN, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JULY 3, 2009



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 |  | 27  
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 46  
|         |  |                                                                                      
|Item 4.  |  | Controls and Procedures                                                               |  | 48  
|         |  |                                                                                      
|PART II  |  | Other Information                                                                     |  |     
|         |  |                                                                                      
|Item 1A. |  | Risk Factors                                                                          |  | 49  
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 49  
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  | 50  



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 |         |   | Nine Months Ended |  
|                                                          |  | July 3,2009          |         |   | June 27,2008      |   |         | July 3,2009 |  |   | June 27,2008 |  
|Sales                                                     |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Products                                                  |  | $                    | 165,098 |   |                   | $ | 206,498 |             |  | $ | 513,565      |   |  | $ | 625,322 |  
|Services                                                  |  |                      | 31,525  |   |                   |   | 37,951  |             |  |   | 96,720       |   |  |   | 104,723 |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Total sales                                               |  |                      | 196,623 |   |                   |   | 244,449 |             |  |   | 610,285      |   |  |   | 730,045 |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Cost of sales                                             |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Products                                                  |  |                      | 92,284  |   |                   |   | 116,457 |             |  |   | 284,243      |   |  |   | 342,951 |  
|Services                                                  |  |                      | 17,690  |   |                   |   | 21,809  |             |  |   | 54,548       |   |  |   | 60,733  |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Total cost of sales                                       |  |                      | 109,974 |   |                   |   | 138,266 |             |  |   | 338,791      |   |  |   | 403,684 |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Gross profit                                              |  |                      | 86,649  |   |                   |   | 106,183 |             |  |   | 271,494      |   |  |   | 326,361 |  
|                                                          |  |                      |         |  
|Operating expenses                                        |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Selling, general and administrative                       |  |                      | 54,444  |   |                   |   | 68,797  |             |  |   | 174,638      |   |  |   | 202,380 |  
|Research and development                                  |  |                      | 13,718  |   |                   |   | 18,519  |             |  |   | 42,977       |   |  |   | 53,889  |  
|Purchased in-process research and development             |  |                      |        |   |                   |   | 1,488   |             |  |   |             |   |  |   | 1,488   |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Total operating expenses                                  |  |                      | 68,162  |   |                   |   | 88,804  |             |  |   | 217,615      |   |  |   | 257,757 |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Operating earnings                                        |  |                      | 18,487  |   |                   |   | 17,379  |             |  |   | 53,879       |   |  |   | 68,604  |  
|Impairment of private company equity investment (Note 15) |  |                      |        |   |                   |   |        |             |  |   |             |   |  |   | (3,018  | )
|Interest income                                           |  |                      | 350     |   |                   |   | 1,200   |             |  |   | 1,275        |   |  |   | 4,888   |  
|Interest expense                                          |  |                      | (434    | ) |                   |   | (390    | )           |  |   | (1,091       | ) |  |   | (1,274  | )
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Earnings before income taxes                              |  |                      | 18,403  |   |                   |   | 18,189  |             |  |   | 54,063       |   |  |   | 69,200  |  
|Income tax expense                                        |  |                      | 4,950   |   |                   |   | 6,823   |             |  |   | 17,383       |   |  |   | 24,463  |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Net earnings                                              |  | $                    | 13,453  |   |                   | $ | 11,366  |             |  | $ | 36,680       |   |  | $ | 44,737  |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|                                                          |  |                      |         |  
|Net earnings per share:                                   |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Basic                                                     |  | $                    | 0.47    |   |                   | $ | 0.39    |             |  | $ | 1.27         |   |  | $ | 1.50    |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Diluted                                                   |  | $                    | 0.47    |   |                   | $ | 0.38    |             |  | $ | 1.27         |   |  | $ | 1.48    |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Shares used in per share calculation:                     |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Basic                                                     |  |                      | 28,651  |   |                   |   | 29,340  |             |  |   | 28,786       |   |  |   | 29,833  |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  
|Diluted                                                   |  |                      | 28,791  |   |                   |   | 29,728  |             |  |   | 28,924       |   |  |   | 30,309  |  
|                                                          |  |                      |         |   |                   |   |         |             |  |   |              |   |  |   |         |  



See accompanying Notes
to the Unaudited Condensed Consolidated Financial Statements.



3



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands, except par value amounts)



|                                                                                                                                                  |  |             |         |                |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | -------------- | - | -------
|                                                                                                                                                  |  | July 3,2009 |         | October 3,2008
|ASSETS                                                                                                                                            |  |             |         |                |   |        
|Current assets                                                                                                                                    |  |             |         |                |   |        
|Cash and cash equivalents                                                                                                                         |  | $           | 166,377 |                | $ | 103,895
|Accounts receivable, net                                                                                                                          |  |             | 156,268 |                |   | 199,420
|Inventories                                                                                                                                       |  |             | 146,817 |                |   | 161,039
|Deferred taxes                                                                                                                                    |  |             | 31,235  |                |   | 32,287 
|Prepaid expenses and other current assets                                                                                                         |  |             | 15,465  |                |   | 15,663 
|                                                                                                                                                  |  |             |         |                |   |        
|Total current assets                                                                                                                              |  |             | 516,162 |                |   | 512,304
|Property, plant and equipment, net                                                                                                                |  |             | 114,869 |                |   | 110,343
|Goodwill                                                                                                                                          |  |             | 215,705 |                |   | 218,208
|Intangible assets, net                                                                                                                            |  |             | 30,338  |                |   | 36,972 
|Other assets                                                                                                                                      |  |             | 26,954  |                |   | 24,089 
|                                                                                                                                                  |  |             |         |                |   |        
|Total assets                                                                                                                                      |  | $           | 904,028 |                | $ | 901,916
|                                                                                                                                                  |  |             |         |                |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                              |  |             |         |                |   |        
|                                                                                                                                                  |  |            
|Current liabilities                                                                                                                               |  |             |         |                |   |        
|Current portion of long-term debt                                                                                                                 |  | $           | 6,250   |                | $ |       
|Accounts payable                                                                                                                                  |  |             | 53,072  |                |   | 70,923 
|Deferred profit                                                                                                                                   |  |             | 10,205  |                |   | 10,957 
|Accrued liabilities                                                                                                                               |  |             | 156,407 |                |   | 167,173
|                                                                                                                                                  |  |             |         |                |   |        
|Total current liabilities                                                                                                                         |  |             | 225,934 |                |   | 249,053
|Long-term debt                                                                                                                                    |  |             | 12,500  |                |   | 18,750 
|Deferred taxes                                                                                                                                    |  |             | 4,012   |                |   | 4,341  
|Other liabilities                                                                                                                                 |  |             | 38,469  |                |   | 43,431 
|                                                                                                                                                  |  |             |         |                |   |        
|Total liabilities                                                                                                                                 |  |             | 280,915 |                |   | 315,575
|                                                                                                                                                  |  |             |         |                |   |        
|Commitments and contingencies (Notes 6, 7, 9, 10, 11, 12, 13, 16 and 20)                                                                          |  |             |         |                |   |        
|                                                                                                                                                  |  |            
|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28,824 shares at July 3, 2009 and 28,917
shares at October 3, 2008 |  |             | 361,523 |                |   | 356,192
|Retained earnings                                                                                                                                 |  |             | 218,074 |                |   | 184,678
|Accumulated other comprehensive income                                                                                                            |  |             | 43,516  |                |   | 45,471 
|                                                                                                                                                  |  |             |         |                |   |        
|Total stockholders equity                                                                                                                        |  |             | 623,113 |                |   | 586,341
|                                                                                                                                                  |  |             |         |                |   |        
|Total liabilities and stockholders equity                                                                                                        |  | $           | 904,028 |                | $ | 901,916
|                                                                                                                                                  |  |             |         |                |   |        



See accompanying Notes
to the Unaudited Condensed Consolidated Financial Statements.



4



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VARIAN, INC. AND SUBSIDIARY COMPANIES



UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)



|                                                                                    |  |                   |         |   |              |   |         |  
|----------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------ | - | ------- | -
|                                                                                    |  | Nine Months Ended |        
|                                                                                    |  | July 3,2009       |         |   | June 27,2008 |  
|Cash flows from operating activities                                                |  |                   |         |   |              |   |         |  
|Net earnings                                                                        |  | $                 | 36,680  |   |              | $ | 44,737  |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                   |         |   |              |   |         |  
|Depreciation and amortization                                                       |  |                   | 20,313  |   |              |   | 21,217  |  
|Gain on disposition of property, plant and equipment                                |  |                   | (140    | ) |              |   | (452    | )
|Impairment of private company equity investment                                     |  |                   |        |   |              |   | 3,018   |  
|Purchased in-process research and development                                       |  |                   |        |   |              |   | 1,488   |  
|Share-based compensation expense                                                    |  |                   | 6,033   |   |              |   | 7,207   |  
|Deferred taxes                                                                      |  |                   | (1,054  | ) |              |   | (540    | )
|Unrealized (gain) loss on currency remeasurement                                    |  |                   | (404    | ) |              |   | 2,673   |  
|Changes in assets and liabilities, excluding effects of acquisitions:               |  |                   |         |   |              |   |         |  
|Accounts receivable, net                                                            |  |                   | 41,294  |   |              |   | 10,735  |  
|Inventories                                                                         |  |                   | 11,850  |   |              |   | (31,046 | )
|Prepaid expenses and other current assets                                           |  |                   | 18      |   |              |   | 490     |  
|Other assets                                                                        |  |                   | (1,363  | ) |              |   | (726    | )
|Accounts payable                                                                    |  |                   | (17,923 | ) |              |   | 1,222   |  
|Deferred profit                                                                     |  |                   | (814    | ) |              |   | (3,966  | )
|Accrued liabilities                                                                 |  |                   | (14,257 | ) |              |   | 3,200   |  
|Other liabilities                                                                   |  |                   | (904    | ) |              |   | 368     |  
|                                                                                    |  |                   |         |   |              |   |         |  
|Net cash provided by operating activities                                           |  |                   | 79,329  |   |              |   | 59,625  |  
|                                                                                    |  |                   |         |   |              |   |         |  
|Cash flows from investing activities                                                |  |                   |         |   |              |   |         |  
|Proceeds from sale of property, plant and equipment                                 |  |                   | 6,110   |   |              |   | 1,265   |  
|Purchase of property, plant and equipment                                           |  |                   | (20,828 | ) |              |   | (16,674 | )
|Acquisitions, net of cash acquired                                                  |  |                   | (2,429  | ) |              |   | (52,898 | )
|Private company equity investments                                                  |  |                   |        |   |              |   | (18     | )
|                                                                                    |  |                   |         |   |              |   |         |  
|Net cash used in investing activities                                               |  |                   | (17,147 | ) |              |   | (68,325 | )
|                                                                                    |  |                   |         |   |              |   |         |  
|Cash flows from financing activities                                                |  |                   |         |   |              |   |         |  
|Repayment of debt                                                                   |  |                   |        |   |              |   | (6,250  | )
|Repurchase of common stock                                                          |  |                   | (7,623  | ) |              |   | (81,892 | )
|Issuance of common stock                                                            |  |                   | 3,283   |   |              |   | 15,761  |  
|Excess tax benefit from share-based plans                                           |  |                   |        |   |              |   | 3,151   |  
|Transfers to Varian Medical Systems, Inc.                                           |  |                   | (441    | ) |              |   | (600    | )
|                                                                                    |  |                   |         |   |              |   |         |  
|Net cash used in financing activities                                               |  |                   | (4,781  | ) |              |   | (69,830 | )
|                                                                                    |  |                   |         |   |              |   |         |  
|Effects of exchange rate changes on cash and cash equivalents                       |  |                   | 5,081   |   |              |   | 10,349  |  
|                                                                                    |  |                   |         |   |              |   |         |  
|Net increase (decrease) in cash and cash equivalents                                |  |                   | 62,482  |   |              |   | (68,181 | )
|Cash and cash equivalents at beginning of period                                    |  |                   | 103,895 |   |              |   | 196,396 |  
|                                                                                    |  |                   |         |   |              |   |         |  
|Cash and cash equivalents at end of period                                          |  | $                 | 166,377 |   |              | $ | 128,215 |  
|                                                                                    |  |                   |         |   |              |   |         |  



See accompanying Notes
to the Unaudited Condensed Consolidated Financial Statements.



5



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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 October 3, 2008 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 October 3, 2008 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 nine months ended July 3, 2009 are not necessarily indicative of the results to be expected for a
full year or for any other period.



Revision of Prior Period
Financial Statements. During the fiscal quarter ended July 3, 2009, the Company identified a clerical error related to the calculation of the fiscal year 2008 income tax provision. The impact of this error was an understatement of income tax
expense and an overstatement of consolidated net earnings of $1.3 million during the fiscal quarter and fiscal year ended October 3, 2008. The error also resulted in an overstatement of current deferred tax assets and retained earnings of $1.3
million at October 3, 2008, January 2, 2009 and April 3, 2009. The Company assessed the materiality of this error in accordance with the SECs Staff Accounting Bulletin 99 and concluded that the previously issued financial statements are not
materially misstated. In accordance with the SECs Staff Accounting Bulletin 108, the Company has corrected the immaterial error by revising the prior period financial statements. Accordingly, the October 3, 2008 balance sheet presented herein
has been revised to correct for the immaterial error and this revision will be presented prospectively in future filings. The revision did not impact net cash provided by operating activities or net cash used in investing activities or financing
activities for the fiscal year ended October 3, 2008 or for the nine months ended July 3, 2009.



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 analytical instruments, research products and
related software, consumable products, accessories and services) and vacuum products (including related accessories and services). The Company primarily serves life science, environmental, energy, and applied research and other 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.



6



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



On July 26, 2009, Varian, Inc., a Delaware corporation (Varian), Agilent
Technologies, Inc., a Delaware corporation (Agilent), and Cobalt Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Agilent (Merger Sub), entered into an Agreement and Plan of Merger (the Merger
Agreement), pursuant to which Merger Sub will, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, merge with and into Varian and Varian will survive the merger and continue as a wholly owned subsidiary
of Agilent (the Merger).



Pursuant to the terms of
the Merger Agreement and subject to the conditions thereof, at the effective time of the Merger (the Effective Time), each share of common stock of Varian issued and outstanding immediately prior to the Effective Time will be converted
into the right to receive $52.00 in cash, without interest.



|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
2009 will comprise the 52-week period ending October 2, 2009, and fiscal year 2008 was comprised of the 53-week period ended October 3, 2008. The fiscal quarters and nine months ended July 3, 2009 and June 27, 2008 each comprised
13 weeks and 39 weeks, respectively.



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



|                                                                                                        |  |                      |        |              |                   |        |             |  |   |              |   |  |   |       
|------------------------------------------------------------------------------------------------------- |  | -------------------- | ------ | ------------ | ----------------- | ------ | ----------- |  | - | ------------ | - |  | - | ------
|                                                                                                        |  | Fiscal Quarter Ended |        |              | Nine Months Ended
|                                                                                                        |  | July 3,2009          |        | June 27,2008 |                   |        | July 3,2009 |  |   | June 27,2008
|(in thousands)                                                                                          |  |                      |        |              |                   |        |             |  |   |              |   |  |   |       
|Net earnings                                                                                            |  | $                    | 13,453 |              | $                 | 11,366 |             |  | $ | 36,680       |   |  | $ | 44,737
|Other comprehensive income (loss):                                                                      |  |                      |        |              |                   |        |             |  |   |              |   |  |   |       
|Currency translation adjustment                                                                         |  |                      | 42,102 |              |                   | (3,048 | )           |  |   | (4,151       | ) |  |   | 25,359
|Reduction in minimum liability due to curtailment of defined benefit pension plan, net of tax of ($854) |  |                      |       |              |                   |       |             |  |   | 2,196        |   |  |   |      
|                                                                                                        |  |                      |        |              |                   |        |             |  |   |              |   |  |   |       
|Total other comprehensive income (loss)                                                                 |  |                      | 42,102 |              |                   | (3,048 | )           |  |   | (1,955       | ) |  |   | 25,359
|                                                                                                        |  |                      |        |              |                   |        |             |  |   |              |   |  |   |       
|Total comprehensive income                                                                              |  | $                    | 55,555 |              | $                 | 8,318  |             |  | $ | 34,725       |   |  | $ | 70,096
|                                                                                                        |  |                      |        |              |                   |        |             |  |   |              |   |  |   |       



|Note 4. | Fair Value Measurements
|------- | -----------------------



Effective October 4, 2008 (the first day of fiscal year 2009), the Company adopted Statement of Financial Accounting Standards No. (SFAS)
157, Fair Value Measurements. The Company elected to delay applying SFAS 157 to certain non-recurring nonfinancial assets and nonfinancial liabilities until fiscal year 2010, as permitted by FASB Staff Position (FSP) 157-2,
Effective Date of FASB Statement No. 157.



On the
same date, the Company also adopted SFAS 159, The Fair Value Option for Financial Assets and Liabilities, which permits entities to elect, at specified election dates, to measure eligible financial instruments at fair value. Since its
adoption of SFAS 159, the Company has not elected the fair value option for any financial assets or liabilities that were not previously measured at fair value.



Fair Value Hierarchy.SFAS 157 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are:



Level 1Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.



Level 2Other inputs that are directly or indirectly observable in the
marketplace.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



Level 3Unobservable inputs which are supported by little or no market activity.



As of July 3, 2009, the Company did not have any financial liabilities
that were measured at fair value on a recurring basis.



Financial assets measured at fair value on a recurring basis as of July 3, 2009 follow:



|                                      |  |                                                            |        |                                            |   |                                        |  |       |   |  |   |       
|------------------------------------- |  | ---------------------------------------------------------- | ------ | ------------------------------------------ | - | -------------------------------------- |  | ----- | - |  | - | ------
|                                      |  | Fair Value Measurements Using:                            
|                                      |  | Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) |        | Significant OtherObservableInputs(Level
2) |   | SignificantUnobservableInputs(Level 3) |  | Total
|(in thousands)                        |  |                                                            |        |                                            |   |                                        |  |       |   |  |   |       
|Financial assets:                     |  |                                                            |        |                                            |   |                                        |  |       |   |  |   |       
|Money market funds (cash equivalents) |  | $                                                          | 57,534 |                                            | $ |                                       |  | $     |  |  | $ | 57,534
|                                      |  |                                                            |        |                                            |   |                                        |  |       |   |  |   |       
|Total financial assets                |  | $                                                          | 57,534 |                                            | $ |                                       |  | $     |  |  | $ | 57,534
|                                      |  |                                                            |        |                                            |   |                                        |  |       |   |  |   |       



The cost basis of cash
and cash equivalents approximates fair value due to the short period of time to maturity.



|Note 5. | Balance Sheet Detail
|------- | --------------------



|                        |  |             |         |                |   |        
|----------------------- |  | ----------- | ------- | -------------- | - | -------
|                        |  | July 3,2009 |         | October 3,2008
|(in thousands)          |  |             |         |                |   |        
|Inventories             |  |             |         |                |   |        
|Raw materials and parts |  | $           | 65,410  |                | $ | 77,447 
|Work in process         |  |             | 27,008  |                |   | 25,091 
|Finished goods          |  |             | 54,399  |                |   | 58,501 
|                        |  |             |         |                |   |        
|Total                   |  | $           | 146,817 |                | $ | 161,039
|                        |  |             |         |                |   |        



|Note 6. | Forward Exchange Contracts
|------- | --------------------------



Effective January 3, 2009 (the first day of the second quarter of fiscal year 2009), the Company adopted SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement 133. The adoption of SFAS 161 had no financial impact on the Companys primary financial statements as it only required additional footnote disclosures. The Company has
applied the requirements of SFAS 161 on a prospective basis. Accordingly, disclosures related to interim periods prior to the date of adoption have not been presented.



The Company enters into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations on the
Companys legal entities monetary assets and liabilities denominated in currencies other than their functional currencies. These foreign currency exposures mainly arise from intercompany transactions by and between the parent company and
its various foreign subsidiaries. The Company does not designate its forward exchange contracts as hedging instruments, and these contracts do not qualify for hedge accounting treatment under SFAS 133, Accounting for Derivative Instruments and
Hedging Activities.



8



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



The Companys forward exchange contracts generally have maturities of one month or less and are
closed out and rolled over into new contracts at the end of each monthly reporting period. Consequently, the fair value of these contracts has historically not been significant at the end of each reporting period.Typically, realized gains
and losses on forward exchange contracts, which arise as a result of closing out the contracts at the end of each reporting period, are substantially offset by revaluation losses and gains on the underlying balances denominated in non-functional
currencies. However, an inaccurate forecast of foreign currency assets or liabilities, coupled with a currency movement, would result in a gain or loss on a net basis. Gains and losses on forward exchange contracts and from revaluation of the
underlying asset and liability balances denominated in non-functional currencies are recognized in the Unaudited Condensed Consolidated Statement of Earnings in selling, general and administrative expenses.



During the fiscal quarter and nine months ended July 3, 2009, the
Company recognized a net foreign currency gain of $0.1 million and a net foreign currency loss of $0.9 million, respectively. During the fiscal quarter and nine months ended June 27, 2008, the Company recognized net foreign currency gains of
$0.7 million and $1.5 million, respectively.



Other than
foreign exchange forward contracts, the Company has no other freestanding or embedded derivative instruments, although the Company may use other derivative instruments in the future. The Company has not entered into forward exchange contracts for
speculative or trading purposes.



As of July 3, 2009, the
Company had foreign exchange forward contracts to purchase the U.S. dollar equivalent of $67.0 million and to sell the U.S. dollar equivalent of $20.5 million in various foreign currencies.



|Note 7. | Acquisitions
|------- | ------------



In-Process Research and Development. During the third quarter of fiscal year 2008, the Company recorded a one-time charge of $1.5 million to
immediately expense acquired in-process research and development related to projects that were in-process at the time of the acquisition of Oxford Diffraction Ltd.



Contingent Consideration Arrangements. The Company is, from time to time, obligated to pay additional cash purchase
price amounts in the event that certain financial or operational milestones are met by acquired businesses. As of July 3, 2009, up to a maximum of $10.0 million could be payable through April 2011 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 and/or operational targets.



The following table summarizes outstanding contingent consideration
arrangements as of July 3, 2009:



|                           |  |                                    |   |  |                    |  |                            
|-------------------------- |  | ---------------------------------- | - |  | ------------------ |  | ---------------------------
|Acquired Company/Business  |  | RemainingAmount Available(maximum) |   |  | Measurement Period |  | Measurement Period End Date
|                           |  | (in millions                       | ) |  |                    |  |                            
|Oxford Diffraction Limited |  | $  7.0                             |   |  | 3 years            |  | April 2011                 
|Analogix Business          |  | 2.7                                |   |  | 3 years            |  | December 2010              
|Other                      |  | 0.3                                |   |  | 2 years            |  | July 2010                  
|                           |  |                                    |   |  |                    |  |                            
|Total                      |  | $10.0                              |   |  |                    |  |                            
|                           |  |                                    |   |  |                    |  |                            



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



|Note 8. | Goodwill and Other Intangible Assets
|------- | ------------------------------------



Changes in the carrying amount of goodwill for each of the Companys reporting segments in the first nine months of fiscal year 2009 were as follow:



|                                               |  |                       |         |   |                    |   |              |  |   |         |  
|---------------------------------------------- |  | --------------------- | ------- | - | ------------------ | - | ------------ |  | - | ------- | -
|                                               |  | ScientificInstruments |         |   | VacuumTechnologies |   | TotalCompany | 
|(in thousands)                                 |  |                       |         |   |                    |   |              |  |   |         |  
|Balance as of October 3, 2008                  |  | $                     | 217,242 |   |                    | $ | 966          |  | $ | 218,208 |  
|Contingent payments on prior-year acquisitions |  |                       | 1,611   |   |                    |   |             |  |   | 1,611   |  
|Foreign currency impacts and other adjustments |  |                       | (4,114  | ) |                    |   |             |  |   | (4,114  | )
|                                               |  |                       |         |   |                    |   |              |  |   |         |  
|Balance as of July 3, 2009                     |  | $                     | 214,739 |   |                    | $ | 966          |  | $ | 215,705 |  
|                                               |  |                       |         |   |                    |   |              |  |   |         |  



As required by SFAS
142, Goodwill and Other Intangible Assets, the Company performs an annual goodwill impairment assessment in the second quarter of each fiscal year. During the second quarter of fiscal year 2009, 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:



|                            |  |                 |        |                         |   |         |     |  |   |       
|--------------------------- |  | --------------- | ------ | ----------------------- | - | ------- | --- |  | - | ------
|                            |  | July 3, 2009   
|                            |  | Gross           |        | AccumulatedAmortization |   |         | Net
|(in thousands)              |  |                 |        |                         |   |         |     |  |   |       
|Intangible assets           |  |                 |        |                         |   |         |     |  |   |       
|Existing technology         |  | $               | 16,070 |                         | $ | (10,913 | )   |  | $ | 5,157 
|Patents and core technology |  |                 | 39,653 |                         |   | (17,266 | )   |  |   | 22,387
|Trade names and trademarks  |  |                 | 2,407  |                         |   | (2,090  | )   |  |   | 317   
|Customer lists              |  |                 | 12,915 |                         |   | (10,919 | )   |  |   | 1,996 
|Other                       |  |                 | 3,090  |                         |   | (2,609  | )   |  |   | 481   
|                            |  |                 |        |                         |   |         |     |  |   |       
|Total                       |  | $               | 74,135 |                         | $ | (43,797 | )   |  | $ | 30,338
|                            |  |                 |        |                         |   |         |     |  |   |       
|                            | 
|                            |  | October 3, 2008
|                            |  | Gross           |        | AccumulatedAmortization |   |         | Net
|(in thousands)              |  |                 |        |                         |   |         |     |  |   |       
|Intangible assets           |  |                 |        |                         |   |         |     |  |   |       
|Existing technology         |  | $               | 16,503 |                         | $ | (9,699  | )   |  | $ | 6,804 
|Patents and core technology |  |                 | 40,680 |                         |   | (14,253 | )   |  |   | 26,427
|Trade names and trademarks  |  |                 | 2,425  |                         |   | (1,946  | )   |  |   | 479   
|Customer lists              |  |                 | 13,090 |                         |   | (10,278 | )   |  |   | 2,812 
|Other                       |  |                 | 2,972  |                         |   | (2,522  | )   |  |   | 450   
|                            |  |                 |        |                         |   |         |     |  |   |       
|Total                       |  | $               | 75,670 |                         | $ | (38,698 | )   |  | $ | 36,972
|                            |  |                 |        |                         |   |         |     |  |   |       



Amortization expense
relating to intangible assets was $1.7 million and $5.6 million during the fiscal quarter and nine months ended July 3, 2009, respectively. Amortization expense relating to intangible assets was $2.4 million and $6.2 million during the fiscal
quarter and nine months ended June 27, 2008, respectively.



10



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



As of July 3, 2009, estimated amortization expense for the remainder of fiscal year 2009 and for
each of the five succeeding fiscal years and thereafter follows:



|                                      |  |   |       
|------------------------------------- |  | - | ------
|(in thousands)                        |  |   |       
|Estimated amortization expense        |  |   |       
|Fiscal quarter ending October 2, 2009 |  | $ | 1,803 
|Fiscal year 2010                      |  |   | 7,185 
|Fiscal year 2011                      |  |   | 5,062 
|Fiscal year 2012                      |  |   | 4,114 
|Fiscal year 2013                      |  |   | 3,579 
|Fiscal year 2014                      |  |   | 3,421 
|Thereafter                            |  |   | 5,174 
|                                      |  |   |       
|Total                                 |  | $ | 30,338
|                                      |  |   |       



|Note 9. | Restructuring Activities
|------- | ------------------------



Summary of Restructuring Plans.The Company has committed to several restructuring plans in order to improve operational
efficiencies, centralize functions, reallocate resources and reduce operating costs.



The following table sets forth changes in the Companys aggregate liability relating to all ongoing restructuring plans during the first, second and third quarters of fiscal year 2009 as well as total
restructuring expense and other related costs recorded since the inception of those plans:



|                                               |  |                  |        |      |                    |   |      |       |  |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | ---- | ------------------ | - | ---- | ----- |  | - | ------ | -
|                                               |  | Employee-Related |        |      | Facilities-Related |   |      | Total | 
|(in thousands)                                 |  |                  |        |      |                    |   |      |       |  |   |        |  
|Balance at October 3, 2008                     |  | $                | 1,840  |      |                    | $ | 982  |       |  | $ | 2,822  |  
|Charges to expense, net                        |  |                  | 925    |      |                    |   |     |       |  |   | 925    |  
|Cash payments                                  |  |                  | (601   | )    |                    |   | (38  | )     |  |   | (639   | )
|Foreign currency impacts and other adjustments |  |                  | 47     |      |                    |   | (56  | )     |  |   | (9     | )
|                                               |  |                  |        |      |                    |   |      |       |  |   |        |  
|Balance at January 2, 2009                     |  |                  | 2,211  |      |                    |   | 888  |       |  |   | 3,099  |  
|Charges to (reversals of) expense, net         |  |                  | 6,577  |      |                    |   | (317 | )     |  |   | 6,260  |  
|Cash payments                                  |  |                  | (4,560 | )    |                    |   | (182 | )     |  |   | (4,742 | )
|Foreign currency impacts and other adjustments |  |                  | 22     |      |                    |   | (40  | )     |  |   | (18    | )
|                                               |  |                  |        |      |                    |   |      |       |  |   |        |  
|Balance at April 3, 2009                       |  |                  | 4,250  |      |                    |   | 349  |       |  |   | 4,599  |  
|(Reversals of) charges to expense, net         |  |                  | (105   | )    |                    |   | 19   |       |  |   | (86    | )
|Cash payments                                  |  |                  | (1,650 | )    |                    |   | (3   | )     |  |   | (1,653 | )
|Foreign currency impacts and other adjustments |  |                  | 131    |      |                    |   | 52   |       |  |   | 183    |  
|                                               |  |                  |        |      |                    |   |      |       |  |   |        |  
|Balance at July 3, 2009                        |  | $                | 2,626  |      |                    | $ | 417  |       |  | $ | 3,043  |  
|                                               |  |                  |        |      |                    |   |      |       |  |   |        |  
|                                               |  |                  |       
|Total expense since inception of plans         |  |                  |        |      |                    |   |      |       |  |   |        |  
|(in millions)                                  |  |                  |        |      |                    |   |      |       |  |   |        |  
|Restructuring expense                          |  |                  | $      | 13.3 |                   
|                                               |  |                  |        |      |                    |   |      |       |  |   |        |  
|Other restructuring-related costs(1)           |  |                  | $      | 8.4  |                   
|                                               |  |                  |        |      |                    |   |      |       |  |   |        |  



|(1) | These costs related primarily to employee retention and relocation costs and accelerated depreciation of assets disposed upon the closure of facilities. Of the $8.4 million in other
restructuring-related costs, $0.7 million and $2.2 million were recorded in the fiscal quarter and nine months ended July 3, 2009, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



Fiscal Year 2009 Second Quarter Plan. During the second quarter of fiscal year 2009, the
Company committed to a plan to reduce its cost structure, primarily through headcount reductions, due to continuing uncertainties in the global economic environment. The plan primarily involves the elimination of approximately 240 regular
employee (primarily in North America and Europe and, to a lesser extent, Asia Pacific and Latin America) and 80 temporary positions in both the Scientific Instruments and Vacuum Technologies segments. In addition, the plan includes the closure of
one small research and development/manufacturing facility in North America (Lake Forest, California) and two sales offices in Europe (Sweden and Switzerland).



Restructuring and other related costs to be incurred in connection with this plan are currently estimated to be between $7.0 million and $8.0 million,
of which between $6.5 million and $7.0 million is expected to impact the Scientific Instruments segment and between $0.5 million and $1.0 million is expected to impact the Vacuum Technologies segment. The restructuring costs include one-time
termination benefits for employees whose positions are being eliminated of between $6.0 million and $7.0 million and lease termination costs of $0.1 million (including future lease payments on vacated facilities). Other restructuring-related costs
include employee retention and relocation costs of between $0.3 million and $0.5 million and facility-related relocation costs and accelerated depreciation of fixed assets to be disposed upon the closure of facilities of between $0.1 million and
$0.3 million. These costs are being recorded and included in cost of sales, selling, general and administrative expenses and research and development expenses.



The following table sets forth changes in the Companys restructuring liability relating to the foregoing plan during the second and third
quarters of fiscal year 2009:



|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | --- | ------------------ | - | -- | ----- |  | - | ------ | -
|                                               |  | Employee-Related |        |     | Facilities-Related |   |    | Total | 
|(in thousands)                                 |  |                  |        |     |                    |   |    |       |  |   |        |  
|Balance at January 2, 2009                     |  | $                |       |     |                    | $ |   |       |  | $ |       |  
|Charges to expense, net                        |  |                  | 6,353  |     |                    |   |   |       |  |   | 6,353  |  
|Cash payments                                  |  |                  | (3,643 | )   |                    |   |   |       |  |   | (3,643 | )
|Foreign currency impacts and other adjustments |  |                  | 67     |     |                    |   |   |       |  |   | 67     |  
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|Balance at April 3, 2009                       |  |                  | 2,777  |     |                    |   |   |       |  |   | 2,777  |  
|(Reversals of) charges to expense, net         |  |                  | (25    | )   |                    |   | 19 |       |  |   | (6     | )
|Cash payments                                  |  |                  | (1,595 | )   |                    |   | (3 | )     |  |   | (1,598 | )
|Foreign currency impacts and other adjustments |  |                  | 110    |     |                    |   |   |       |  |   | 110    |  
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|Balance at July 3, 2009                        |  | $                | 1,267  |     |                    | $ | 16 |       |  | $ | 1,283  |  
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|                                               |  |                  |       
|Total expense since inception of plan          |  |                  |        |     |                    |   |    |       |  |   |        |  
|(in millions)                                  |  |                  |        |     |                    |   |    |       |  |   |        |  
|Restructuring expense                          |  |                  | $      | 6.3 |                   
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|Other restructuring-related costs              |  |                  | $      | 0.4 |                   
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  



The restructuring
expense of $6.3 million recorded during the nine months of fiscal year 2009 related to employee termination benefits, of which $5.7 million impacted the Scientific Instruments segment and $0.6 million impacted the Vacuum Technologies segment. The
Company also incurred $0.4 million in other restructuring-related costs during the nine months of fiscal year 2009, which impacted the Scientific Instruments segment and were comprised of $0.1 million in employee-related costs and a $0.3 million
non-cash charge for accelerated depreciation of assets to be disposed upon the closure of facilities. These costs are expected to be settled by the end of fiscal year 2010.



12



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



Fiscal Year 2009 First Quarter Plan. During the first quarter of fiscal year 2009, the Company
committed to a separate plan to reduce its employee headcount in order to reduce operating costs and increase margins. The plan involves the termination of approximately 35 employees, mostly located in Europe. The restructuring costs
related to this plan primarily consist of one-time termination benefits which are expected to be settled by the end of fiscal year 2010. This restructuring plan did not involve any non-cash components. Costs relating to restructuring activities
recorded under this plan have been included in cost of sales, selling, general and administrative expenses and research and development expenses.



The following table sets forth changes in the Companys restructuring liability relating to the foregoing plan during the first, second and third
quarters of fiscal year 2009:



|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | ----- | - | ------------------ | - | ----- |  | - | ----- | -
|                                               |  | Employee-Related |       |   | Facilities-Related |   | Total | 
|(in thousands)                                 |  |                  |       |   |                    |   |       |  |   |       |  
|Balance at October 3, 2008                     |  | $                |      |   |                    | $ |      |  | $ |      |  
|Charges to expense, net                        |  |                  | 1,312 |   |                    |   |      |  |   | 1,312 |  
|Cash payments                                  |  |                  | (601  | ) |                    |   |      |  |   | (601  | )
|Foreign currency impacts and other adjustments |  |                  | 49    |   |                    |   |      |  |   | 49    |  
|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|Balance at January 2, 2009                     |  |                  | 760   |   |                    |   |      |  |   | 760   |  
|Charges to expense, net                        |  |                  | 32    |   |                    |   |      |  |   | 32    |  
|Cash payments                                  |  |                  | (527  | ) |                    |   |      |  |   | (527  | )
|Foreign currency impacts and other adjustments |  |                  | (27   | ) |                    |   |      |  |   | (27   | )
|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|Balance at April 3, 2009                       |  |                  | 238   |   |                    |   |      |  |   | 238   |  
|Charges to expense, net                        |  |                  | 16    |   |                    |   |      |  |   | 16    |  
|Cash payments                                  |  |                  | (55   | ) |                    |   |      |  |   | (55   | )
|Foreign currency impacts and other adjustments |  |                  | 14    |   |                    |   |      |  |   | 14    |  
|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|Balance at July 3, 2009                        |  | $                | 213   |   |                    | $ |      |  | $ | 213   |  
|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|                                               |  |                  |      
|Total expense since inception of plan          |  |                  |       |   |                    |   |       |  |   |       |  
|(in millions)                                  |  |                  |       |   |                    |   |       |  |   |       |  
|Restructuring expense                          |  | $                | 1.4   |  
|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|Other restructuring-related costs              |  | $                | 0.1   |  
|                                               |  |                  |       |   |                    |   |       |  |   |       |  



The restructuring
expense of $1.4 million recorded during the first nine months of fiscal year 2009 related to employee termination benefits, of which $1.2 million impacted the Scientific Instruments segment and $0.2 million impacted the Vacuum Technologies segment.
The Company also incurred $0.1 million in other employee-related costs during the period which impacted the Scientific Instruments segment.



Fiscal Year 2007 Plan. During fiscal year 2007, the Company committed to a plan to combine and optimize the development and assembly of most of its
nuclear magnetic resonance (NMR) and mass spectrometry products, to further centralize related administration and other functions and to reallocate certain resources toward more rapidly growing product lines and geographies. As part of
the plan, the Company is creating an information rich detection (IRD) center in Walnut Creek, California, where NMR operations are being integrated with mass spectrometry operations already located in Walnut Creek. The Company is
investing in a new 45,000 square foot building and a substantial remodel of an existing building there to house the IRD center.



13



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



As a result of the plan, a number of employee positions have been or will be relocated or eliminated
and certain facilities will be consolidated. These actions primarily impact the Scientific Instruments segment and involve the elimination of between approximately 40 and 60 positions.



Restructuring and other related costs associated with this plan include one-time termination benefits, employee retention
payments, costs to relocate facilities (including decommissioning costs, moving costs and temporary facility/storage costs), accelerated depreciation of fixed assets to be disposed as a result of facilities actions and lease termination costs which
are expected to be completed by the second quarter of fiscal year 2010. Costs relating to restructuring activities recorded under this plan have been included in cost of sales, selling, general and administrative expenses and research and
development expenses.



The following table sets forth changes
in the Companys restructuring liability relating to the foregoing plan during the first, second and third quarters of fiscal year 2009:



|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | ----- | --- | ------------------ | - | ---- | ----- |  | - | ----- | -
|                                               |  | Employee-Related |       |     | Facilities-Related |   |      | Total | 
|(in thousands)                                 |  |                  |       |     |                    |   |      |       |  |   |       |  
|Balance at October 3, 2008                     |  | $                | 1,840 |     |                    | $ | 551  |       |  | $ | 2,391 |  
|Reversals of expense, net                      |  |                  | (387  | )   |                    |   |     |       |  |   | (387  | )
|Cash payments                                  |  |                  |      |     |                    |   | (38  | )     |  |   | (38   | )
|Foreign currency impacts and other adjustments |  |                  | (2    | )   |                    |   | 17   |       |  |   | 15    |  
|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  
|Balance at January 2, 2009                     |  |                  | 1,451 |     |                    |   | 530  |       |  |   | 1,981 |  
|Charges to (reversals of) expense, net         |  |                  | 192   |     |                    |   | (317 | )     |  |   | (125  | )
|Cash payments                                  |  |                  | (390  | )   |                    |   | (182 | )     |  |   | (572  | )
|Foreign currency impacts and other adjustments |  |                  | (18   | )   |                    |   | (31  | )     |  |   | (49   | )
|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  
|Balance at April 3, 2009                       |  |                  | 1,235 |     |                    |   |     |       |  |   | 1,235 |  
|Reversals of expense, net                      |  |                  | (96   | )   |                    |   |     |       |  |   | (96   | )
|Cash payments                                  |  |                  |      |     |                    |   |     |       |  |   |      |  
|Foreign currency impacts and other adjustments |  |                  | 7     |     |                    |   |     |       |  |   | 7     |  
|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  
|Balance at July 3, 2009                        |  | $                | 1,146 |     |                    | $ |     |       |  | $ | 1,146 |  
|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  
|                                               |  |                  |      
|Total expense since inception of plan          |  |                  |       |     |                    |   |      |       |  |   |       |  
|(in millions)                                  |  |                  |       |     |                    |   |      |       |  |   |       |  
|Restructuring expense                          |  |                  | $     | 3.8 |                   
|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  
|Other restructuring-related costs              |  |                  | $     | 7.2 |                   
|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  



The net reversals of
restructuring expense of $0.1 million and $0.6 million recorded during the fiscal quarter and nine months ended July 3, 2009, respectively, related to changes in estimates of certain employee termination benefits and the early cancellation of a
lease agreement for a vacated facility. The Company also incurred $0.5 million and $1.7 million in other restructuring-related costs during the fiscal quarter and nine months ended July 3, 2009, respectively. These costs were related to
employee retention costs and facilities-related costs including decommissioning costs and non-cash charges for accelerated depreciation of assets to be disposed upon the closure of facilities.



|Note 10. | 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 under product warranty are established and charged to cost of



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



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 nine months ended July 3, 2009 and June 27, 2008 follow:



|                                            |  |                   |         |   |              |   |         |  
|------------------------------------------- |  | ----------------- | ------- | - | ------------ | - | ------- | -
|                                            |  | Nine Months Ended |        
|                                            |  | July 3,2009       |         |   | June 27,2008 |  
|(in thousands)                              |  |                   |         |   |              |   |         |  
|Beginning balance                           |  | $                 | 13,867  |   |              | $ | 12,454  |  
|Charges to costs and expenses               |  |                   | 15,663  |   |              |   | 14,793  |  
|Acquired warranty liabilities               |  |                   |        |   |              |   | 1,098   |  
|Warranty expenditures and other adjustments |  |                   | (15,736 | ) |              |   | (14,743 | )
|                                            |  |                   |         |   |              |   |         |  
|Ending balance                              |  | $                 | 13,794  |   |              | $ | 13,602  |  
|                                            |  |                   |         |   |              |   |         |  



Indemnification
Obligations. Financial Accounting Standards Board (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. Certain of the agreements containing these indemnification obligations are disclosed as exhibits to
the Companys Annual Report on Form 10-K. The estimated fair value of these indemnification obligations is not considered to be material.



The Company is subject to certain indemnification obligations to Jabil Circuit, Inc. (Jabil) in connection with the Companys sale of its
Electronics Manufacturing Business to Jabil which was completed in fiscal year 2005. 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, tax and environmental matters. The agreement containing these indemnification obligations is disclosed as an exhibit to the Companys Annual Report on Form 10-K. 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. The indemnification obligations are more fully described in these indemnity
agreements and the Companys By-Laws. 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



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



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 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 11. | Debt and Credit Facilities
|-------- | --------------------------



Credit Facilities. The Company maintains relationships with banks in many countries from whom it sometimes obtains bank guarantees and short-term
standby letters of credit. These guarantees and letters of credit relate primarily to advance payments and deposits made to the Companys subsidiaries by customers for which separate liabilities are recorded in the unaudited condensed
consolidated financial statements. As of July 3, 2009, a total of $21.2 million of these bank guarantees and letters of credit were outstanding. 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 both July 3, 2009 and October 3, 2008, the Company had an $18.8 million term loan outstanding with a U.S. financial institution at a fixed interest rate of 6.7%. The term loan contains 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 agreement at July 3, 2009.



The following table summarizes future principal payments on borrowings under
long-term debt outstanding as of July 3, 2009:



|                                           |  |                                |      |              |      |       |      |   |      |  |      |       |            |   |   |  |   |       |  |   |   |  |   |       
|------------------------------------------ |  | ------------------------------ | ---- | ------------ | ---- | ----- | ---- | - | ---- |  | ---- | ----- | ---------- | - | - |  | - | ----- |  | - | - |  | - | ------
|                                           |  | FiscalQuarterEndingOct. 2,2009 |      | Fiscal Years |      | Total
|                                           |  |                                | 2010 |              | 2011 |       | 2012 |   | 2013 |  | 2014 |       | Thereafter |  
|(in thousands)                             |  |                                |      |              |      |       |      |   |      |  |      |       |            |   |   |  |   |       |  |   |   |  |   |       
|Long-term debt (including current portion) |  | $                              |     |              | $    | 6,250 |      | $ |     |  | $    | 6,250 |            | $ |  |  | $ | 6,250 |  | $ |  |  | $ | 18,750
|                                           |  |                                |      |              |      |       |      |   |      |  |      |       |            |   |   |  |   |       |  |   |   |  |   |       



Based upon rates
currently available to the Company for debt with similar terms and remaining maturities, the carrying amount of long-term debt approximates the estimated fair value.



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



|Note 12. | 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 |      |   | Nine Months Ended |  
|                                                                    |  | July 3,2009          |      |   | June 27,2008      |   |      | July 3,2009 |  |   | June 27,2008 |  
|(in thousands)                                                      |  |                      |      |   |                   |   |      |             |  |   |              |   |  |   |        |  
|Service cost                                                        |  | $                    | 130  |   |                   | $ | 343  |             |  | $ | 628          |   |  | $ | 1,029  |  
|Interest cost                                                       |  |                      | 679  |   |                   |   | 723  |             |  |   | 2,089        |   |  |   | 2,169  |  
|Expected return on plan assets                                      |  |                      | (491 | ) |                   |   | (653 | )           |  |   | (1,631       | ) |  |   | (1,959 | )
|Amortization of prior service cost and actuarial (gains) and losses |  |                      | (47  | ) |                   |   |     |             |  |   | (13          | ) |  |   |       |  
|Curtailment loss recognized                                         |  |                      |     |   |                   |   |     |             |  |   | 135          |   |  |   |       |  
|                                                                    |  |                      |      |   |                   |   |      |             |  |   |              |   |  |   |        |  
|Net periodic pension cost                                           |  | $                    | 271  |   |                   | $ | 413  |             |  | $ | 1,208        |   |  | $ | 1,239  |  
|                                                                    |  |                      |      |   |                   |   |      |             |  |   |              |   |  |   |        |  



Employer
Contributions. During the fiscal quarter and nine months ended July 3, 2009, the Company made contributions totaling $0.1 million and $0.7 million to its defined benefit pension plans. The Company currently anticipates contributing an
additional $0.1 million to these plans in the fourth quarter of fiscal year 2009.



Defined Benefit Pension Plan Curtailment. During the second quarter of fiscal year 2009, the Company ceased future benefit accruals to a defined benefit pension plan in the United Kingdom. In connection with
this action, the Company recorded a curtailment loss of $0.1 million during the second quarter of fiscal year 2009.



|Note 13. | 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 recoveries and tax benefits recognized or realized by VMS for such costs) relating to (a) environmental investigation, monitoring and/or remediation activities at certain facilities
previously operated by VAI and third-party claims made in connection with environmental conditions at those facilities, and (b) U.S. Environmental Protection Agency or third-party claims alleging that VAI or VMS is a potentially responsible
party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA) in connection with certain sites to which VAI allegedly shipped manufacturing waste for recycling, treatment or disposal
(the CERCLA sites). With respect to the facilities formerly operated by VAI, VMS is overseeing the environmental investigation, monitoring and/or remediation activities, in most cases under the direction of or in consultation with
federal, state and/or local agencies, and handling third-party claims. VMS is also handling claims relating to the CERCLA sites. The Company is also undertaking environmental investigation and/or monitoring activities at one of its facilities under
the direction of or in consultation with governmental agencies.



Various uncertainties make it difficult to estimate future costs for certain of these environmental-related activities, specifically external legal expenses, VMS internal oversight costs, third-party claims and a former



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STATEMENTS(Continued)



VAI facility where the likelihood and scope of further environmental-related activities are difficult to assess. As of July 3, 2009, it was nonetheless
estimated that the Companys future exposure for these environmental-related costs ranged in the aggregate from $1.1 million to $2.6 million. The time frame over which these costs are expected to be incurred varies with each type of cost,
ranging up to approximately 30 years as of July 3, 2009. No amount in the foregoing range of estimated future costs is discounted, and no amount in the range is believed to be more probable of being incurred than any other amount in such range.
The Company therefore had an accrual of $1.1 million as of July 3, 2009, for these future environmental-related costs.



Sufficient knowledge has been gained to be able to better estimate other costs for future environmental-related activities. As of July 3, 2009, it
was estimated that the Companys future costs for these environmental-related activities ranged in the aggregate from $2.7 million to $12.8 million. The time frame over which these costs are expected to be incurred varies, ranging up to
approximately 30 years as of July 3, 2009. As to each of these ranges of cost estimates, it was determined that a particular amount within the range was a better estimate than any other amount within the range. Together, these amounts totaled
$5.6 million at July 3, 2009. Because both the amount and timing of the recurring portion of these costs were reliably determinable, that portion is discounted at 4%, net of inflation. The Company therefore had an accrual of $4.1 million as of
July 3, 2009, which represents its best estimate of these future environmental-related costs after discounting estimated recurring future costs. This accrual is in addition to the $1.1 million described in the preceding paragraph.



The Company has not reduced any environmental-related liability in
anticipation of recoveries from third parties. However, 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 $1.0 million (discounted at 4%, net of inflation) in Other assets as of July 3, 2009, for the Companys share of that insurance recovery.



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.



|Note 14. | Stockholders Equity and Stock Plans
|-------- | ------------------------------------



Stock Rights.On April 2, 1999, stockholders of record of VAI as of March 24, 1999 received in the Distribution (described in Note 2) one
share of the Companys common stock for each share of VAI common stock held on April 2, 1999. Each stockholder also received one preferred stock purchase right (Right) for each share of common stock distributed, entitling the
stockholder to purchase one one-thousandth of a share of Participating Preferred Stock, par value $0.01 per share, for $200.00 (subject to adjustment), in the event of certain changes in the Companys ownership. The Participating Preferred
Stock was designed so that each one



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



one-thousandth of a share had economic and voting terms similar to those of one share of common stock. During the second quarter of fiscal year 2009, the
Rights expired. As of April 2, 2009, when the Rights had expired, no Rights were eligible to be exercised and none had been exercised through that date.



Share-Based Compensation Expense. The following table summarizes the amount of share-based compensation expense by award type as well as the effect
of this expense on income tax expense and net earnings:



|                                                                                |  |                      |       |   |                   |   |       |             |  |   |              |   |  |   |        |  
|------------------------------------------------------------------------------- |  | -------------------- | ----- | - | ----------------- | - | ----- | ----------- |  | - | ------------ | - |  | - | ------ | -
|                                                                                |  | Fiscal Quarter Ended |       |   | Nine Months Ended |  
|                                                                                |  | July 3,    2009      |       |   | June 27,2008      |   |       | July 3,2009 |  |   | June 27,2008 |  
|(in thousands)                                                                  |  |                      |       |   |                   |   |       |             |  |   |              |   |  |   |        |  
|Share-based compensation expense by award type:                                 |  |                      |       |   |                   |   |       |             |  |   |              |   |  |   |        |  
|Employee and non-employee director stock options                                |  | $                    | 1,063 |   |                   | $ | 1,359 |             |  | $ | 3,700        |   |  | $ | 4,150  |  
|Employee stock purchase plan                                                    |  |                      | 169   |   |                   |   | 224   |             |  |   | 663          |   |  |   | 787    |  
|Restricted (nonvested) stock                                                    |  |                      | 490   |   |                   |   | 802   |             |  |   | 1,445        |   |  |   | 2,045  |  
|Non-employee director stock units                                               |  |                      |      |   |                   |   |      |             |  |   | 225          |   |  |   | 225    |  
|                                                                                |  |                      |       |   |                   |   |       |             |  |   |              |   |  |   |        |  
|Total share-based compensation expense (effect on earnings before income taxes) |  |                      | 1,722 |   |                   |   | 2,385 |             |  |   | 6,033        |   |  |   | 7,207  |  
|Effect on income tax expense                                                    |  |                      | (610  | ) |                   |   | (744  | )           |  |   | (2,077       | ) |  |   | (2,070 | )
|                                                                                |  |                      |       |   |                   |   |       |             |  |   |              |   |  |   |        |  
|Effect on net earnings                                                          |  | $                    | 1,112 |   |                   | $ | 1,641 |             |  | $ | 3,956        |   |  | $ | 5,137  |  
|                                                                                |  |                      |       |   |                   |   |       |             |  |   |              |   |  |   |        |  



Share-based
compensation expense included in the preceding table related to restricted (non-vested) stock includes $49,000 and $203,000 in the fiscal quarter and nine months ended July 3, 2009, respectively, related to restricted stock granted in
connection with the Companys fiscal year 2007 restructuring plan.



Share-based compensation expense has been included in the Companys Unaudited Condensed Consolidated Statement of Earnings as follows:



|                                    |  |                      |       |                   |   |             |  |              |       |  |   |      
|----------------------------------- |  | -------------------- | ----- | ----------------- | - | ----------- |  | ------------ | ----- |  | - | -----
|                                    |  | Fiscal Quarter Ended |       | Nine Months Ended
|                                    |  | July 3,2009          |       | June 27,2008      |   | July 3,2009 |  | June 27,2008
|(in thousands)                      |  |                      |       |                   |   |             |  |              |       |  |   |      
|Cost of sales                       |  | $                    | 86    |                   | $ | 106         |  | $            | 306   |  | $ | 338  
|Selling, general and administrative |  |                      | 1,565 |                   |   | 2,164       |  |              | 5,518 |  |   | 6,503
|Research and development            |  |                      | 71    |                   |   | 115         |  |              | 209   |  |   | 366  
|                                    |  |                      |       |                   |   |             |  |              |       |  |   |      
|Total                               |  | $                    | 1,722 |                   | $ | 2,385       |  | $            | 6,033 |  | $ | 7,207
|                                    |  |                      |       |                   |   |             |  |              |       |  |   |      



Stock Options.Under the Omnibus Stock Plan (OSP), the Company periodically grants stock options to officers, directors and employees. 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 of the Companys Board of Directors, but not later than ten years after the date of grant (except in the event of
death, after which an option is exercisable for three years). Stock options generally vest in three equal annual installments over three years from the grant date.



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



The following table summarizes stock option activity under the OSP for the nine months ended
July 3, 2009:



|                               |  |               |   |  |                              |       |                                   |   |              |  
|------------------------------ |  | ------------- | - |  | ---------------------------- | ----- | --------------------------------- | - | ------------ | -
|                               |  | Shares        |   |  | WeightedAverageExercisePrice |       | AggregateGrant DateFair Value (1) |  
|                               |  | (in thousands | ) |  |                              |       |                                   |   | (in millions | )
|Outstanding at October 3, 2008 |  | 1,660         |   |  | $                            | 44.21 |                                   |   |              |  
|Granted                        |  | 334           |   |  | $                            | 35.44 |                                   | $ | 3.6          |  
|Exercised                      |  | (42           | ) |  | $                            | 12.10 |                                   |   |              |  
|Cancelled or expired           |  | (56           | ) |  | $                            | 43.06 |                                   |   |              |  
|                               |  |               |   |  |                              |       |                                   |   |              |  
|Outstanding at July 3, 2009    |  | 1,896         |   |  | $                            | 43.42 |                                   |   |              |  
|                               |  |               |   |  |                              |       |                                   |   |              |  



|(1) | After estimated forfeitures.
|--- | ----------------------------



As of July 3, 2009, the unrecognized share-based compensation balance related to stock options was $4.3 million. This amount will be recognized as
expense using the straight-line attribution method over the remaining weighted-average amortization period of 1.2 years.



Restricted (Nonvested) Stock.Under the OSP, the Company also periodically grants restricted (nonvested) common stock to employees. Such grants are
valued using the quoted market value of the underlying common stock as of the grant date. The fair value of these shares is then recognized by the Company as share-based compensation expense ratably over their respective vesting periods, which range
from one to three years.



The following table summarizes
restricted (nonvested) common stock activity under the OSP for the nine months ended July 3, 2009:



|                                            |  |               |   |  |                                    |       |                               |   |              |  
|------------------------------------------- |  | ------------- | - |  | ---------------------------------- | ----- | ----------------------------- | - | ------------ | -
|                                            |  | Shares        |   |  | WeightedAverageGrantDate FairValue |       | AggregateGrant DateFair Value |  
|                                            |  | (in thousands | ) |  |                                    |       |                               |   | (in millions | )
|Outstanding and unvested at October 3, 2008 |  | 105           |   |  | $                                  | 54.51 |                               |   |              |  
|Granted(1)                                  |  | 122           |   |  | $                                  | 24.18 |                               | $ | 3.0          |  
|Vested(2)                                   |  | (67           | ) |  | $                                  | 50.83 |                               |   |              |  
|Forfeited                                   |  | (3            | ) |  | $                                  | 53.56 |                               |   |              |  
|                                            |  |               |   |  |                                    |       |                               |   |              |  
|Outstanding and unvested at July 3, 2009    |  | 157           |   |  | $                                  | 32.63 |                               |   |              |  
|                                            |  |               |   |  |                                    |       |                               |   |              |  



|(1) | Includes 63,000 shares for which vesting is subject to both a performance condition and continued service.
|--- | ----------------------------------------------------------------------------------------------------------

|(2) | Includes shares tendered to the Company by employees in settlement of employee tax withholding obligations.
|--- | -----------------------------------------------------------------------------------------------------------



As of July 3, 2009, there was a total of $3.3 million in unrecognized
share-based compensation expense related to restricted stock granted under the OSP. This expense will be recognized over the remaining weighted-average amortization period of 2.0 years.



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 $45,000. The stock units will vest upon termination of



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



the directors service on the Board of Directors and will then be satisfied by the issuance of shares of the Companys common stock. Each
non-employee director who holds stock units does not have rights as a stockholder with respect to the shares issuable thereunder 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 first nine months ended July 3, 2009 and the first nine months ended June 27, 2008, the Company granted stock units with an aggregate value of $225,000 to
non-employee members of its Board of Directors (of which there were five) and recognized the total value of $225,000 as share-based compensation expense at the time of grant in each of those respective periods.



Employee Stock Purchase Plan.During the fiscal quarter and nine
months ended July 3, 2009, employees purchased approximately 34,000 shares for $0.7 million and 103,000 shares for $2.8 million, respectively, under the Companys Employee Stock Purchase Plan (ESPP). During the fiscal quarter
and nine months ended June 27, 2008, employees purchased approximately 20,000 shares for $1.0 million and 61,000 shares for $3.1 million, respectively, under the ESPP. As of July 3, 2009, a total of approximately 85,000 shares remained
available for issuance under the ESPP.



Stock Repurchase
Programs. In February 2008, 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 December 31, 2009. During the fiscal quarter ended July 3, 2009, the Company did not repurchase any shares of its common stock under this authorization. During the nine months ended July 3, 2009, the Company
repurchased and retired 344,100 shares of its common stock under this authorization at an aggregate cost of $7.1 million. As of July 3, 2009, the Company had remaining authorization to repurchase $37.5 million of its common stock under this
program. However, under the terms of the Merger Agreement with Agilent, the Company is generally prohibited from repurchasing any shares of its common stock without the prior consent of Agilent.



Other Stock Repurchases.During the fiscal quarter and nine months
ended July 3, 2009, the Company repurchased and retired 4,000 and 15,000 shares, respectively, tendered to it by employees in settlement of employee tax withholding obligations due from those employees upon the vesting of restricted
stock.



|Note 15. | Investments in Privately Held Companies
|-------- | ---------------------------------------



The Company has equity investments in privately held companies which, because of its ownership interest and other factors, are carried at cost. The
Company monitors these investments for impairment.



During the
second quarter of fiscal year 2008, the Company became aware of information which raised substantial doubt about the ability of a small, privately held company in which the Company held a cost-method equity investment to continue as a going concern.
Based on this information, the Company determined that the fair value of its investment had declined and that the decline was other-than-temporary. As a result, the Company wrote off the entire $3.0 million carrying value of its investment via an
impairment charge in that period.



|Note 16. | Income Taxes
|-------- | ------------



The Companys U.S. federal, state and local and foreign income tax returns are subject to audit by relevant tax authorities. Although the timing and
outcome of income tax audits is highly uncertain, the Company has recorded liabilities for associated unrecognized tax benefits. The effective tax rate for the fiscal quarter ended July 3, 2009 and for the fiscal quarter ended June 27, 2008,
reflects a net tax benefit of $1.2 million and $1.1 million, respectively, due to the reduction of unrecognized tax benefits resulting from the lapse of certain



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



statures of limitations. It is possible that certain unrecognized tax benefits could decrease by $0.8 million in the next twelve months due to the lapse of
certain statutes of limitation and result in a reduction in income tax expense. Any such reduction could be impacted by other changes in unrecognized tax benefits.



|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 are calculated similarly, except that the weighted-average number of common shares outstanding during the period is increased 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, unvested restricted stock and non-employee director stock units) is reflected in
diluted earnings per share by application of the treasury stock method, which includes consideration of share-based compensation and the tax benefit thereon as required by SFAS 123(R).



For the fiscal quarter and nine months ended July 3, 2009, options to
purchase 1,760,000 and 1,795,000 shares, respectively, were excluded from the calculation of diluted earnings per share as their effect was anti-dilutive. For the fiscal quarter and nine months ended June 27, 2008, options to purchase 282,000
and 256,000 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 |  | Nine Months Ended
|                                              |  | July 3,2009          |  | June 27,2008      |  | July 3,2009 |  | June 27,2008
|(in thousands)                                |  |                      |  |                   |  |             |  |             
|Weighted-average basic shares outstanding     |  | 28,651               |  | 29,340            |  | 28,786      |  | 29,833      
|Net effect of dilutive potential common stock |  | 140                  |  | 388               |  | 138         |  | 476         
|                                              |  |                      |  |                   |  |             |  |             
|Weighted-average diluted shares outstanding   |  | 28,791               |  | 29,728            |  | 28,924      |  | 30,309      
|                                              |  |                      |  |                   |  |             |  |             



|Note 18. | Industry Segments
|-------- | -----------------



For financial reporting purposes, 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, environmental, energy, and applied
research and other 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, industrial and other 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, treasury, insurance and certain 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.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



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 |       | Nine Months Ended
|                        |  | July 3,2009          |       | June 27,2008      |   | July 3,2009 |  | June 27,2008
|(in millions)           |  |                      |       |                   |   |             |  |              |       |  |   |      
|Scientific Instruments  |  | $                    | 167.9 |                   | $ | 200.7       |  | $            | 510.6 |  | $ | 602.1
|Vacuum Technologies     |  |                      | 28.7  |                   |   | 43.7        |  |              | 99.7  |  |   | 127.9
|                        |  |                      |       |                   |   |             |  |              |       |  |   |      
|Total industry segments |  | $                    | 196.6 |                   | $ | 244.4       |  | $            | 610.3 |  | $ | 730.0
|                        |  |                      |       |                   |   |             |  |              |       |  |   |      



|                                                |  |                      |      |   |                   |   |      |             |  |   |              |   |  |   |       |  
|----------------------------------------------- |  | -------------------- | ---- | - | ----------------- | - | ---- | ----------- |  | - | ------------ | - |  | - | ----- | -
|                                                |  | Pretax Earnings      |      |   | Pretax Earnings   |  
|                                                |  | Fiscal Quarter Ended |      |   | Nine Months Ended |  
|                                                |  | July 3,2009          |      |   | June 27,2008      |   |      | July 3,2009 |  |   | June 27,2008 |  
|(in millions)                                   |  |                      |      |   |                   |   |      |             |  |   |              |   |  |   |       |  
|Scientific Instruments                          |  | $                    | 16.0 |   |                   | $ | 12.2 |             |  | $ | 44.8         |   |  | $ | 54.5  |  
|Vacuum Technologies                             |  |                      | 5.6  |   |                   |   | 7.8  |             |  |   | 19.2         |   |  |   | 24.3  |  
|                                                |  |                      |      |   |                   |   |      |             |  |   |              |   |  |   |       |  
|Total industry segments                         |  |                      | 21.6 |   |                   |   | 20.0 |             |  |   | 64.0         |   |  |   | 78.8  |  
|General corporate                               |  |                      | (3.1 | ) |                   |   | (2.6 | )           |  |   | (10.1        | ) |  |   | (10.2 | )
|Impairment of private company equity investment |  |                      |     |   |                   |   |     |             |  |   |             |   |  |   | (3.0  | )
|Interest income                                 |  |                      | 0.3  |   |                   |   | 1.2  |             |  |   | 1.3          |   |  |   | 4.9   |  
|Interest expense                                |  |                      | (0.4 | ) |                   |   | (0.4 | )           |  |   | (1.1         | ) |  |   | (1.3  | )
|                                                |  |                      |      |   |                   |   |      |             |  |   |              |   |  |   |       |  
|Total pretax earnings                           |  | $                    | 18.4 |   |                   | $ | 18.2 |             |  | $ | 54.1         |   |  | $ | 69.2  |  
|                                                |  |                      |      |   |                   |   |      |             |  |   |              |   |  |   |       |  



|Note 19. | Recent Accounting Pronouncements
|-------- | --------------------------------



In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157,which delays the effective date of SFAS 157 for
all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The
Company adopted SFAS 157 effective October 4, 2008 with the exception of the application of the statement to nonrecurring nonfinancial assets and nonfinancial liabilities (see Note 4). The Company does not expect the adoption of the provisions
deferred by FSP 157-2 in the first quarter of fiscal year 2010 to have a material impact on its financial condition or results of operations.



In December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations, (SFAS 141(R)). SFAS 141(R) retains the fundamental
requirements of the original pronouncement requiring that the purchase method be used for all business combinations but also provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and
any noncontrolling interest in the acquiree. It also requires the recognition of assets acquired and liabilities assumed arising from contingencies, the capitalization of in-process research and development at fair value, and the expensing of
acquisition-related costs as incurred.SFAS 141(R) also requires that certain tax contingencies and adjustments to valuation allowances



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



related to business combinations, which previously were adjusted to goodwill, must be adjusted to income tax expense, regardless of the date of the original
business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company does not expect its adoption in the first quarter of fiscal year 2010 to have a material impact on the Companys financial
condition or results of operations. However, in the event that the Company completes acquisitions subsequent to its adoption of SFAS 141(R), the application of its provisions will likely have a material impact on the Companys results of
operations, although the Company is not currently able to estimate the impact.



In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends the accounting prescribed in SFAS
141(R) for assets and liabilities arising from contingencies in business combinations. FSP FAS 141(R)-1 requires pre-acquisition contingencies to be recognized at fair value if fair value can be reasonably determined during the measurement period.
If fair value cannot be reasonably determined, the FSP requires measurement based on the recognition and measurement criteria of SFAS 5, Accounting for Contingencies.FSP 141(R)-1 is effective for fiscal years beginning after
December 15, 2008. The Company does not expect its adoption in the first quarter of fiscal year 2010 to have a material impact on the Companys financial condition or results of operations. However, in the event that the Company completes
acquisitions subsequent to its adoption of FSP 141(R)-1, the application of its provisions will likely have a material impact on the Companys results of operations, although the Company is not currently able to estimate the impact.



In December 2007, the FASB issued SFAS 160, Noncontrolling
Interests in Consolidated Financial Statementsan amendment of ARB No. 51. SFAS 160 requires that ownership interests in subsidiaries held by parties other than the parent and the amount of consolidated net income be clearly
identified, labeled and presented in the consolidated financial statements. It also requires once a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. Sufficient
disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008, and requires retroactive
adoption of the presentation and disclosure requirements for existing minority interests. All other requirements are applied prospectively. The Company does not expect the adoption of SFAS 160 to have a material impact on its financial condition or
results of operations.



In April 2008, the FASB issued FSP
142-3, Determination of the Useful Life of Intangible Assets, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of
FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets, and the period of expected cash flows used to measure the fair value of the asset under
SFAS 141(R), Business Combinations, and other accounting literature. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and must be applied prospectively to intangible assets acquired after the effective date.
Early adoption is prohibited. Given that FSP 142-3 applies to intangible assets acquired after the effective date, the Company does not expect its adoption to have a material impact on its financial condition or results of operations.



In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions are Participating Securities. FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating
securities and shall be included in the computation of earnings per share under the two-class method described in SFAS 128, Earnings per Share. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim
periods within those years, on a retrospective basis. The Company does not expect the adoption of FSP EITF 03-6-1 to have a material impact on its earnings per share.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



In December 2008, the FASB issued FSP 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets. FSP 132(R)-1 amends SFAS 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employers disclosures
about plan assets of a defined benefit pension or other postretirement plan. This FSP is effective for fiscal years ending after December 15, 2009. The Company does not expect the adoption of FSP 132(R)-1 to have a material impact on its
financial condition or results of operations.



In June
2009, the FASB issued SFAS 168, The FASB Accounting Standard Codification and the Hierarchy of the Generally Accepted Accounting Principlesa replacement of SFAS No. 162.SFAS 168 establishes the FASB Accounting Standards
Codification as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS 168 is effective for financial statements issued for interim and annual periods ending on or after September 15,
2009. The Company will update its disclosures to conform to the Codification in its Annual Report on Form 10-K for the fiscal year ending October 2, 2009. The Company does not expect the adoption of SFAS 168 to have a material impact on its
financial condition or results of operations. However, because the Codification completely replaces existing standards, it will affect the way U.S. GAAP is referenced in the Notes to the Consolidated Financial Statements.



|Note 20. | Subsequent Event
|-------- | ----------------



In accordance with SFAS 165, the Company has evaluated subsequent events through August 11, 2009, which represents the date the financial statements
were issued and concluded that except for the following, no material subsequent events have occurred that would require recognition in the Unaudited Condensed Consolidated Financial Statements or disclosure in the Notes to the Unaudited Condensed
Consolidated Financial Statements.



On July 26, 2009,
Varian, Inc., a Delaware corporation (Varian), Agilent Technologies, Inc., a Delaware corporation (Agilent), and Cobalt Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Agilent (Merger
Sub), entered into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which Merger Sub will, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, merge with and into Varian and
Varian will survive the merger and continue as a wholly owned subsidiary of Agilent (the Merger).



Pursuant to the terms of the Merger Agreement and subject to the conditions thereof, at the effective time of the Merger (the Effective Time),
each share of common stock of Varian issued and outstanding immediately prior to the Effective Time will be converted into the right to receive $52.00 in cash, without interest.



Varian and Agilent have made certain representations, warranties and covenants in the Merger Agreement, including, among
others, covenants that, subject to certain exceptions, (i) Varian will conduct its business in the ordinary course consistent with past practice, and refrain from taking specified actions, during the period between the execution of the Merger
Agreement and the Effective Time, (ii) the Board of Directors of Varian will recommend to its stockholders adoption of the Merger Agreement, and (iii) Varian will not solicit, initiate, seek or knowingly encourage or facilitate, any
inquiry, proposal or offer from, furnish non-public information to, or participate in any discussions with, or enter into any agreement with, any person or group regarding any alternative transaction.



The completion of the Merger is subject to various closing conditions,
including obtaining the approval of Varians stockholders and receiving antitrust approvals (including under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended).



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



The Merger Agreement contains certain termination rights for both Varian and Agilent and further
provides that, upon termination of the Merger Agreement under specified circumstances, Varian may be required to pay Agilent a termination fee of $46 million.



The Boards of Directors of Varian and Agilent have approved the Merger and the Merger Agreement. In addition, concurrently with the execution of the
Merger Agreement, all directors and certain executive officers of Varian, who together held less than 1% of Varians outstanding common stock as of July 26, 2009, have entered into voting agreements whereby they agree among other things to
vote all shares of Varian common stock held by them in favor of the adoption of the Merger Agreement.



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|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 (but are not limited to) those relating to the timing and amount of anticipated
restructuring and other related costs and related cost savings as well as anticipated orders, revenues, earnings and capital expenditures in fiscal year 2009.



We caution investors that forward-looking statements are only 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 October 3, 2008 and in
Item 1ARisk Factors in this Quarterly Report on Form 10-Q. We encourage you to read these sections 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: when and how quickly global economic conditions improve, and whether conditions worsen before they improve, whether we will succeed in new product development, release, commercialization, performance and acceptance;
whether we can achieve growth in sales for life science, environmental, energy and/or applied research and other applications; whether we can achieve sales growth in Europe, North America and/or Latin America; risks arising from the timing of
shipments, installations and the recognition of revenues on certain research products, including nuclear magnetic resonance (NMR) spectroscopy systems, magnetic resonance (MR) imaging systems and fourier transform mass
spectrometry (FTMS) systems and superconducting magnets; the impact of shifting product mix on profit margins; competitive products and pricing; economic conditions in our various 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/or earnings; whether we will see continued investment in capital equipment, in particular
given the global liquidity and credit crisis; whether we will see reduced demand from customers that operate in cyclical industries; whether the global liquidity and credit crisis will impact the collectability of accounts receivable from our
customers; the extent and timing of government funding for research; our ability to successfully integrate acquisitions; the actual costs, timing and benefits of restructuring activities (such as the employee reductions and other actions announced
on January 16, 2009 and our Northern California operations consolidation) and other efficiency improvement activities (such as our global procurement, lower-cost manufacturing and outsourcing initiatives); variability in our effective income
tax rate (due to factors including the timing and amount of discrete tax events and changes to unrecognized tax benefits); the timing and amount of share-based compensation; the ability of our company and Agilent Technologies, Inc.
(Agilent) to complete the announced acquisition of our company by Agilent (the Merger); the affect on our business operations and financial results of the announcement, the pendency, and activities relating to the completion
of the Merger; the affect of certain restrictions on our ability to conduct our business under the Merger Agreement with Agilent; and other risks detailed from time to time in our filings with the U.S. Securities and Exchange Commission (the
SEC). We undertake no special obligation to update any forward-looking statements, whether in response to new information, future events or otherwise.



Revision of Prior Period Financial Statements



During the fiscal quarter ended July 3, 2009, we identified a clerical error related to the calculation of the fiscal year
2008 income tax provision. The impact of this error was an understatement of income tax expense and an overstatement of consolidated net earnings of $1.3 million during the fiscal quarter and fiscal year ended October 3, 2008. The error also
resulted in an overstatement of current deferred tax assets and retained earnings



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of $1.3 million at October 3, 2008, January 2, 2009 and April 3, 2009. We assessed the materiality of this error in accordance with the SECs Staff
Accounting Bulletin 99 and concluded that the previously issued financial statements are not materially misstated. In accordance with the SECs Staff Accounting Bulletin 108, we have corrected the immaterial error by revising the prior period
financial statements. Accordingly, the October 3, 2008 balance sheet presented herein has been revised to correct for the immaterial error and this revision will be presented prospectively in future filings. The revision did not impact net cash
provided by operating activities or net cash used in investing activities or financing activities for the fiscal year ended October 3, 2008 or for the nine months ended July 3, 2009.



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Results of Operations



Third Quarter of Fiscal Year 2009 Compared to Third Quarter of Fiscal Year 2008



Segment Results



For financial reporting purposes, our 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 third quarters of fiscal years 2009 and 2008:



|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |       |   
|------------------------------ |  | -------------------- | ----- | - | ------------------ | ----- | - | - | - | ----- | --------- |  | ----- | - |  | - | ----- | - |  | ----- | --
|                               |  | Fiscal Quarter Ended |       |   | Increase(Decrease) |      
|                               |  | July 3,2009          |       |   | June 27,2008       |       |  
|                               |  | $                    |       |   | % ofSales          |       |   | $ |   |       | % ofSales |  |       | $ |  |   | %     |  
|(dollars in millions)          |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |       |   
|Sales by Segment:              |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |       |   
|Scientific Instruments         |  | $                    | 167.9 |   |                    | 85.4  | % |   | $ | 200.7 |           |  | 82.1  | % |  | $ | (32.8 | ) |  | (16.4 | )%
|Vacuum Technologies            |  |                      | 28.7  |   |                    | 14.6  |   |   |   | 43.7  |           |  | 17.9  |   |  |   | (15.0 | ) |  | (34.3 | ) 
|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |       |   
|Total company                  |  | $                    | 196.6 |   |                    | 100.0 | % |   | $ | 244.4 |           |  | 100.0 | % |  | $ | (47.8 | ) |  | (19.6 | )%
|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |       |   
|                               |  |                      |       |   |                    |      
|Operating Earnings by Segment: |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |       |   
|Scientific Instruments         |  | $                    | 16.0  |   |                    | 9.5   | % |   | $ | 12.2  |           |  | 6.1   | % |  | $ | 3.8   |   |  | 31.2  | % 
|Vacuum Technologies            |  |                      | 5.6   |   |                    | 19.3  |   |   |   | 7.8   |           |  | 17.7  |   |  |   | (2.2  | ) |  | (28.4 | ) 
|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |       |   
|Total segments                 |  |                      | 21.6  |   |                    | 11.0  |   |   |   | 20.0  |           |  | 8.2   |   |  |   | 1.6   |   |  | 8.0   |   
|General corporate              |  |                      | (3.1  | ) |                    | (1.6  | ) |   |   | (2.6  | )         |  | (1.1  | ) |  |   | (0.5  | ) |  | (19.2 | ) 
|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |       |   
|Total company                  |  | $                    | 18.5  |   |                    | 9.4   | % |   | $ | 17.4  |           |  | 7.1   | % |  | $ | 1.1   |   |  | 6.4   | % 
|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |       |   



Scientific
Instruments. The decrease in Scientific Instruments sales was primarily attributable to lower sales volume of our analytical instruments products and the negative impact of the stronger U.S. dollar on reported revenues. The lower volume was
primarily due to the impact of continued global economic weakness on capital equipment spending.



Scientific Instruments operating earnings for the third quarter of fiscal year 2009 included acquisition-related intangible amortization of $1.7 million
and restructuring and other related costs of $0.7 million. In comparison, Scientific Instruments operating earnings for the third quarter of fiscal year 2008 included an acquisition-related in-process research and development charge of $1.5 million,
acquisition-related intangible amortization of $2.4 million, amortization of $0.6 million related to inventory written up to fair value in connection with the acquisition of Oxford Diffraction Limited (Oxford Diffraction) and
restructuring and other related costs of $1.7 million. Excluding the impact of these items, operating earnings increased as a percentage of sales due to the positive impact of efficiency improvements implemented in recent years, the benefits of cost
reduction activities implemented during the second quarter of fiscal year 2009 and the stronger U.S. dollar (which was unfavorable to reported sales but favorable to reported operating margins). The positive impact of these factors was partially
offset by the negative impact of lower sales volume during the third quarter of fiscal year 2009. Also, the third quarter of fiscal year 2008 included higher than usual transition costs related to the relocation of manufacturing activities for
certain products and, to a lesser extent, transition costs relating to acquisitions completed in that quarter.



Vacuum Technologies. The decrease in Vacuum Technologies sales was driven mainly by lower sales volume of products for both industrial and life
science applications, primarily due to the negative impacts of continued global economic weakness on capital equipment spending and the stronger U.S. dollar on reported revenues.



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The increase in Vacuum Technologies operating earnings as a percentage of sales was primarily due to the
positive impact of efficiency improvements implemented in recent years, the benefits from cost reduction activities implemented in the second quarter of fiscal year 2009 and the stronger U.S. dollar (which was unfavorable to reported sales but
favorable to reported operating margins), partially offset by the negative impact of lower sales volume.



Consolidated Results



The following table presents comparisons of our sales and other selected consolidated financial results for the third quarters of fiscal years 2009 and 2008:



|                                              |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |        |   
|--------------------------------------------- |  | -------------------- | ----- | - | ------------------ | ----- | - | - | - | ----- | --------- |  | ----- | - |  | - | ----- | - |  | ------ | --
|                                              |  | Fiscal Quarter Ended |       |   | Increase(Decrease) |      
|                                              |  | July 3,2009          |       |   | June 27,2008       |       |  
|                                              |  | $                    |       |   | % ofSales          |       |   | $ |   |       | % ofSales |  |       | $ |  |   | %     |  
|(dollars in millions, except per share data)  |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |        |   
|Sales                                         |  | $                    | 196.6 |   |                    | 100.0 | % |   | $ | 244.4 |           |  | 100.0 | % |  | $ | (47.8 | ) |  | (19.6  | )%
|                                              |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |        |   
|Gross profit                                  |  |                      | 86.6  |   |                    | 44.1  |   |   |   | 106.2 |           |  | 43.4  |   |  |   | (19.6 | ) |  | (18.4  | ) 
|                                              |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |        |   
|                                              |  |                      |       |   |                    |      
|Operating expenses:                           |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |        |   
|Selling, general and administrative           |  |                      | 54.4  |   |                    | 27.7  |   |   |   | 68.8  |           |  | 28.1  |   |  |   | (14.4 | ) |  | (20.9  | ) 
|Research and development                      |  |                      | 13.7  |   |                    | 7.0   |   |   |   | 18.5  |           |  | 7.6   |   |  |   | (4.8  | ) |  | (25.9  | ) 
|Purchased in-process research and development |  |                      |      |   |                    |      |   |   |   | 1.5   |           |  | 0.6   |   |  |   | (1.5  | ) |  | (100.0 | ) 
|                                              |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |        |   
|Total operating expenses                      |  |                      | 68.1  |   |                    | 34.7  |   |   |   | 88.8  |           |  | 36.3  |   |  |   | (20.7 | ) |  | (23.2  | ) 
|                                              |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |        |   
|                                              |  |                      |       |   |                    |      
|Operating earnings                            |  |                      | 18.5  |   |                    | 9.4   |   |   |   | 17.4  |           |  | 7.1   |   |  |   | 1.1   |   |  | 6.4    |   
|Interest income                               |  |                      | 0.3   |   |                    | 0.2   |   |   |   | 1.2   |           |  | 0.5   |   |  |   | (0.9  | ) |  | (100.0 | ) 
|Interest expense                              |  |                      | (0.4  | ) |                    | (0.2  | ) |   |   | (0.4  | )         |  | (0.2  | ) |  |   |      |   |  |       |   
|Income tax expense                            |  |                      | (4.9  | ) |                    | (2.5  | ) |   |   | (6.8  | )         |  | (2.8  | ) |  |   | 1.9   |   |  | (27.4  | ) 
|                                              |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |        |   
|Net earnings                                  |  | $                    | 13.5  |   |                    | 6.9   | % |   | $ | 11.4  |           |  | 4.6   | % |  | $ | 2.1   |   |  | 18.4   | % 
|                                              |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |        |   
|Net earnings per diluted share                |  | $                    | 0.47  |   |                    |       |   |   | $ | 0.38  |           |  |       |   |  | $ | 0.09  |   |  |        |   
|                                              |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |       |   |  |        |   



Sales. As
discussed under the heading Segment Results above, sales by our Scientific Instruments and Vacuum Technologies segments in the third quarter of fiscal year 2009 decreased by 16.4% and 34.3%, respectively, compared to the prior-year quarter.
On a consolidated basis, sales declined 19.6% in the third quarter of fiscal year 2009. This decrease was primarily related to lower sales volume of a broad range of our analytical instruments and vacuum products due to the impact of continued
global economic weakness on capital equipment spending. Reported sales were also negatively impacted by the stronger U.S. dollar, which strengthened approximately 9% on a weighted-average basis compared to other currencies in which we sell products
and services.



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For geographic reporting purposes, we use four regionsNorth America (excluding Mexico), Europe
(including the Middle East and Africa), Asia Pacific (including India) and Latin America (including Mexico). Sales by geographic region in the third quarters of fiscal years 2009 and 2008 were as follows:



|                      |  |                      |       |           |                    |   |   |   |           |  |       |   |  |   |       |   |  |       |   
|--------------------- |  | -------------------- | ----- | --------- | ------------------ | - | - | - | --------- |  | ----- | - |  | - | ----- | - |  | ----- | --
|                      |  | Fiscal Quarter Ended |       |           | Increase(Decrease) |  
|                      |  | July 3,2009          |       |           | June 27,2008       |   |  
|                      |  | $                    |       | % ofSales |                    |   | $ |   | % ofSales |  |       | $ |  |   | %     |  
|(dollars in millions) |  |                      |       |           |                    |   |   |   |           |  |       |   |  |   |       |   |  |       |   
|Geographic Region     |  |                      |       |           |                    |   |   |   |           |  |       |   |  |   |       |   |  |       |   
|North America         |  | $                    | 59.3  |           | 30.2               | % |   | $ | 79.2      |  | 32.4  | % |  | $ | (19.9 | ) |  | (25.1 | )%
|Europe                |  |                      | 75.1  |           | 38.2               |   |   |   | 98.1      |  | 40.1  |   |  |   | (23.0 | ) |  | (23.4 | ) 
|Asia Pacific          |  |                      | 53.4  |           | 27.1               |   |   |   | 51.5      |  | 21.1  |   |  |   | 1.9   |   |  | 3.5   |   
|Latin America         |  |                      | 8.8   |           | 4.5                |   |   |   | 15.6      |  | 6.4   |   |  |   | (6.8  | ) |  | (43.3 | ) 
|                      |  |                      |       |           |                    |   |   |   |           |  |       |   |  |   |       |   |  |       |   
|Total company         |  | $                    | 196.6 |           | 100.0              | % |   | $ | 244.4     |  | 100.0 | % |  | $ | (47.8 | ) |  | (19.6 | )%
|                      |  |                      |       |           |                    |   |   |   |           |  |       |   |  |   |       |   |  |       |   



Sales volume decreased
in North America, Europe and Latin America primarily due to the impact of continued global economic weakness on capital equipment spending. The sales increase in the Asia Pacific region (where strong sales growth in China was partially offset by
sales declines in other parts of the region) was attributable to higher Scientific Instrument sales which was partially offset by decreased sales in Vacuum Technologies. In addition, reported sales outside North America were unfavorably impacted by
the strengthening of the U.S. dollar against most major currencies compared to the third quarter of fiscal year 2008.



Gross Profit. Gross profit for the third quarter of fiscal year 2009 reflects the impact of $1.5 million in amortization expense relating to
acquisition-related intangible assets and $0.5 million in restructuring and other related costs. In comparison, gross profit for the third quarter of fiscal year 2008 reflects the impact of $2.0 million in amortization expense relating to
acquisition-related intangible assets, amortization of $0.6 million related to inventory written up to fair value primarily in connection with the acquisition of Oxford Diffraction and $0.5 million in restructuring and other related costs. Excluding
the impact of these items, the increase in gross profit as a percentage of sales was primarily due to the stronger U.S. dollar (which was favorable to reported gross profit margins but unfavorable to reported sales), the positive impact of
efficiency improvements (such as those resulting from lower-cost manufacturing, outsourcing and global procurement initiatives as well as facility relocations/closures) implemented in recent years, and the benefits from cost reduction activities
implemented in the second quarter of fiscal year 2009. The positive impact of these factors was partially offset by the negative impact of lower sales volume.



Selling, General and Administrative. Selling, general and administrative expenses for the third quarter of fiscal year 2009 included $0.2
million in amortization expense relating to acquisition-related intangible assets and $0.1 million in restructuring and other related costs. In comparison, selling, general and administrative expenses for the third quarter of fiscal year 2008
included $0.4 million in amortization expense relating to acquisition-related intangible assets and $0.9 million in restructuring and other related costs. Excluding the impact of these items, selling, general and administrative expenses were
essentially flat as a percentage of sales, with the favorable impact of the stronger U.S. dollar, cost savings achieved from restructuring activities implemented in recent years and lower costs relating to new product introductions and acquisitions
offset by the negative impact of lower sales volume.



Research and Development. Research and development expenses for the third quarter of fiscal year 2008 reflect the impact of restructuring and other related costs of $0.3 million. Excluding the impact of this item, the decrease
in research and development expenses as a percentage of sales was primarily due to the favorable impact of the stronger U.S. dollar in the third quarter of fiscal year 2009 and higher costs associated with new product introductions and product
transition activities in the third quarter of fiscal year 2008.



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Purchased In-Process Research and Development. In connection with the Oxford Diffraction
acquisition in the third quarter of fiscal year 2008, we recorded a one-time charge of $1.5 million to immediately expense acquired in-process research and development related to projects that were in-process at the time of the acquisition.



Restructuring Activities. We have committed to several
restructuring plans in order to improve operational efficiencies, centralize functions, reallocate resources and reduce operating costs.From the respective inception dates of these plans through July 3, 2009, we have incurred a total of
$13.3 million in restructuring expense and a total of $8.4 million in other costs related directly to those plans (comprised primarily of employee retention and relocation costs and accelerated depreciation of assets disposed upon the closure of
facilities).



The following table sets forth changes in our
aggregate liability relating to all restructuring plans during the third quarter of fiscal year 2009:



|                                               |  |                  |        |   |                    |   |     |       |  |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | - | ------------------ | - | --- | ----- |  | - | ------ | -
|                                               |  | Employee-Related |        |   | Facilities-Related |   |     | Total | 
|(in thousands)                                 |  |                  |        |   |                    |   |     |       |  |   |        |  
|Balance at April 3, 2009                       |  | $                | 4,250  |   |                    | $ | 349 |       |  | $ | 4,599  |  
|(Reversals of) charges to expense, net         |  |                  | (105   | ) |                    |   | 19  |       |  |   | (86    | )
|Cash payments                                  |  |                  | (1,650 | ) |                    |   | (3  | )     |  |   | (1,653 | )
|Foreign currency impacts and other adjustments |  |                  | 131    |   |                    |   | 52  |       |  |   | 183    |  
|                                               |  |                  |        |   |                    |   |     |       |  |   |        |  
|Balance at July 3, 2009                        |  | $                | 2,626  |   |                    | $ | 417 |       |  | $ | 3,043  |  
|                                               |  |                  |        |   |                    |   |     |       |  |   |        |  



Fiscal Year 2009
Second Quarter Plan. During the second quarter of fiscal year 2009, we committed to a plan to reduce our cost structure, primarily through headcount reductions, due to continuing uncertainties in the global economic environment. The plan
involves the elimination of approximately 240 regular employees (primarily in North America and Europe and to a lesser extent Asia Pacific and Latin America) and 80 temporary positions in both the Scientific Instruments and Vacuum Technologies
segments. In addition, the plan includes the closure of one small research and development/manufacturing facility in North America (Lake Forest, California) and two sales offices in Europe (Sweden and Switzerland). We expect these activities to be
completed during fiscal year 2009.



Restructuring and other
related costs to be incurred in connection with this plan are currently estimated to be between $7.0 million and $8.0 million, of which between $6.5 million and $7.0 million is expected to impact the Scientific Instruments segment and between $0.5
million and $1.0 million is expected to impact the Vacuum Technologies segment. The restructuring costs include one-time termination benefits for employees whose positions are being eliminated of between $6.0 million and $7.0 million and lease
termination costs of $0.1 million (including future lease payments on vacated facilities). Other restructuring-related costs include employee retention and relocation costs of between $0.3 million and $0.5 million and facility-related relocation
costs and accelerated depreciation of fixed assets to be disposed upon the closure of facilities of between $0.1 million and $0.3 million. Costs relating to restructuring activities recorded under this plan have been included in cost of sales,
selling, general and administrative expenses and research and development expenses.



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The following table sets forth changes in our restructuring liability relating to the foregoing plan
during the third quarter of fiscal year 2009 as well as total restructuring expense and other restructuring-related costs recorded since the inception of the plan:



|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | --- | ------------------ | - | -- | ----- |  | - | ------ | -
|                                               |  | Employee-Related |        |     | Facilities-Related |   |    | Total | 
|(in thousands)                                 |  |                  |        |     |                    |   |    |       |  |   |        |  
|Balance at April 3, 2009                       |  | $                | 2,777  |     |                    | $ |   |       |  | $ | 2,777  |  
|(Reversals of) charges to expense, net         |  |                  | (25    | )   |                    |   | 19 |       |  |   | (6     | )
|Cash payments                                  |  |                  | (1,595 | )   |                    |   | (3 | )     |  |   | (1,598 | )
|Foreign currency impacts and other adjustments |  |                  | 110    |     |                    |   |   |       |  |   | 110    |  
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|Balance at July 3, 2009                        |  | $                | 1,267  |     |                    | $ | 16 |       |  | $ | 1,283  |  
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|Total expense since inception of plan          |  |                  |        |     |                    |   |    |       |  |   |        |  
|(in millions)                                  |  |                  |        |     |                    |   |    |       |  |   |        |  
|Restructuring expense                          |  |                  | $      | 6.3 |                   
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|Other restructuring-related costs              |  |                  | $      | 0.4 |                   
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  



These costs are
expected to be settled during fiscal year 2009, although certain one-time termination benefits are expected to be settled in fiscal year 2010.



Fiscal Year 2009 First Quarter Plan. During the first quarter of fiscal year 2009, we committed to a separate plan to reduce our employee
headcount in order to reduce operating costs and increase margins. The plan involves the termination of approximately 35 employees, mostly located in Europe. The restructuring costs related to this plan primarily consist of one-time
termination benefits which are expected to be settled by the end of fiscal year 2010. This restructuring plan did not involve any non-cash components. Costs relating to restructuring activities recorded under this plan have been included
in cost of sales, selling, general and administrative expenses and research and development expenses.



The following table sets forth changes in our restructuring liability relating to the foregoing plan during the third quarter of fiscal year 2009:



|                                               |  |                  |     |   |                    |   |       |  |   |     |  
|---------------------------------------------- |  | ---------------- | --- | - | ------------------ | - | ----- |  | - | --- | -
|                                               |  | Employee-Related |     |   | Facilities-Related |   | Total | 
|(in thousands)                                 |  |                  |     |   |                    |   |       |  |   |     |  
|Balance at April 3, 2009                       |  | $                | 238 |   |                    | $ |      |  | $ | 238 |  
|Charges to expense, net                        |  |                  | 16  |   |                    |   |      |  |   | 16  |  
|Cash payments                                  |  |                  | (55 | ) |                    |   |      |  |   | (55 | )
|Foreign currency impacts and other adjustments |  |                  | 14  |   |                    |   |      |  |   | 14  |  
|                                               |  |                  |     |   |                    |   |       |  |   |     |  
|Balance at July 3, 2009                        |  | $                | 213 |   |                    | $ |      |  | $ | 213 |  
|                                               |  |                  |     |   |                    |   |       |  |   |     |  
|                                               |  |                  |    
|Total expense since inception of plan          |  |                  |     |   |                    |   |       |  |   |     |  
|(in millions)                                  |  |                  |     |   |                    |   |       |  |   |     |  
|Restructuring expense                          |  | $                | 1.4 |  
|                                               |  |                  |     |   |                    |   |       |  |   |     |  
|Other restructuring-related costs              |  | $                | 0.1 |  
|                                               |  |                  |     |   |                    |   |       |  |   |     |  



Fiscal Year 2007
Plan. During the third quarter of fiscal year 2007, we committed to a plan to combine and optimize the development and assembly of most of our nuclear magnetic resonance (NMR) and mass spectrometry products, to further centralize
related administration and other functions and to reallocate certain resources toward more rapidly growing product lines and geographies. As part of the plan, we are creating an information rich detection (IRD) center in Walnut Creek,
California, where NMR operations are being integrated



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with mass spectrometry operations already located in Walnut Creek. Merging our IRD talent base into this single location will capitalize on our strength in
NMR and mass spectrometry and enhance our ability to develop innovative IRD solutions that are more powerful, complementary, routine and user-friendly. Underscoring our commitment to IRD and the benefits that a combined location and organization
will provide, we are investing in a new 45,000 square foot building and a substantial remodel of an existing building there to house the IRD center.



As a result of the plan, a number of employee positions have been or will be relocated or eliminated and certain facilities have been, or will be,
consolidated. These actions primarily impact the Scientific Instruments segment and involve the elimination of between approximately 40 and 60 positions. We expect these activities to be completed during fiscal year 2009.



Restructuring and other related costs associated with this plan include
one-time employee termination benefits, employee retention payments, costs to relocate facilities (including decommissioning costs, moving costs and temporary facility/storage costs), accelerated depreciation of fixed assets to be disposed as a
result of facilities actions and lease termination costs.



The
following table sets forth changes in our restructuring liability relating to the foregoing plan during the third quarter of fiscal year 2009 as well as total restructuring expense and other restructuring-related costs recorded since the inception
of the plan:



|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | ----- | - | ------------------ | - | ----- |  | - | ----- | -
|                                               |  | Employee-Related |       |   | Facilities-Related |   | Total | 
|(in thousands)                                 |  |                  |       |   |                    |   |       |  |   |       |  
|Balance at April 3, 2009                       |  | $                | 1,235 |   |                    | $ |      |  | $ | 1,235 |  
|Reversals of expense, net                      |  |                  | (96   | ) |                    |   |      |  |   | (96   | )
|Cash payments                                  |  |                  |      |   |                    |   |      |  |   |      |  
|Foreign currency impacts and other adjustments |  |                  | 7     |   |                    |   |      |  |   | 7     |  
|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|Balance at July 3, 2009                        |  | $                | 1,146 |   |                    | $ |      |  | $ | 1,146 |  
|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|                                               |  |                  |      
|Total expense since inception of plan          |  |                  |       |   |                    |   |       |  |   |       |  
|(in millions)                                  |  |                  |       |   |                    |   |       |  |   |       |  
|Restructuring expense                          |  | $                | 3.8   |  
|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|Other restructuring-related costs              |  | $                | 7.2   |  
|                                               |  |                  |       |   |                    |   |       |  |   |       |  



The net reversals of
restructuring expense of $0.1 million recorded during the third quarter of fiscal year 2009 were primarily due to adjustments to estimates for employee termination benefits. We also incurred $0.5 million in other restructuring-related costs during
the quarter, which were comprised of $0.3 million in employee retention costs and $0.2 million in facilities-related costs (including decommissioning costs) and a non-cash charge for accelerated depreciation of assets to be disposed upon the closure
of facilities.



Restructuring Cost Savings. The
following table sets forth the estimated annual cost savings for each plan when they were initiated as well as where those cost savings were expected to be realized:



|                                                                                                                                                                                                                |  |                              
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------
|Restructuring Plan                                                                                                                                                                                              |  | Estimated Annual Cost Savings
|Fiscal Year 2007 Plan (Scientific Instruments - to combine and optimize the development and assembly on certain products and to centralize
functions and reallocate resources to rapidly growing product lines) |  | $3 million - $5 million      
|Fiscal Year 2009 First Quarter Plan (Scientific Instruments - to reduce headcount and operating costs and increase operating
margins)                                                                           |  | $2 million - $3 million      
|Fiscal Year 2009 Second Quarter Plan (Scientific Instruments and Vacuum Technologies - to reduce cost structure due to global economic
uncertainties, primarily through headcount reduction)                    |  | $20 million - $24 million    



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These estimated cost savings are expected to impact cost of sales, selling, general and administrative
expenses and research and development expenses. 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 IRD 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 these estimates.



Interest Income.The decrease in interest income was primarily due to lower interest rates on invested cash during the third quarter of fiscal year
2009 compared to the third quarter of fiscal year 2008.



Income Tax Expense.The effective income tax rate was 26.9% for the third quarter of fiscal year 2009, compared to 37.5% for the third quarter of fiscal year 2008. The lower effective income tax rate in the third quarter of fiscal
year 2009 was primarily due to lower U.S. taxes on foreign earnings, lower non-deductible compensation expense and a non-deductible in-process research and development charge related to the acquisition of Oxford Diffraction in April 2008. In
addition, a larger decrease in unrecognized tax benefits due to the lapse of certain statutes of limitations positively impacted the effective income tax rate in the third quarter of fiscal year 2009 compared to the third quarter of fiscal year
2008.



Net Earnings. Net earnings for the third
quarter of fiscal year 2009 reflect the after-tax impacts of $1.7 million in pre-tax acquisition-related intangible amortization and $0.6 million in pre-tax restructuring and other related costs. Net earnings for the third quarter of fiscal year
2008 reflect an acquisition-related in-process research and development charge of $1.5 million and the after-tax impacts of $2.4 million in acquisition-related intangible amortization, $0.6 million in amortization related to inventory written up to
fair value in connection with the acquisition of Oxford Diffraction and $1.7 million in restructuring and other related costs. Excluding the after-tax impact of these items, the decrease in net earnings in the third quarter of fiscal year 2009 was
primarily attributable to the negative impact of lower sales volume, partially offset by reduced operating expenses as a percentage of sales and a lower effective income tax rate.



First Nine Months of Fiscal Year 2009 Compared to First Nine Months of Fiscal Year 2008



Segment Results



The following table presents comparisons of our sales and operating earnings
for each of our Scientific Instruments and Vacuum Technologies segments and in total for the first nine months of fiscal years 2009 and 2008:



|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |       |   
|------------------------------ |  | ----------------- | ----- | - | ------------------ | ----- | - | - | - | ----- | --------- |  | ----- | - |  | - | ------ | - |  | ----- | --
|                               |  | Nine Months Ended |       |   | Increase(Decrease) |      
|                               |  | July 3,2009       |       |   | June 27,2008       |       |  
|                               |  | $                 |       |   | % ofSales          |       |   | $ |   |       | % ofSales |  |       | $ |  |   | %      |  
|(dollars in millions)          |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |       |   
|Sales by Segment:              |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |       |   
|Scientific Instruments         |  | $                 | 510.6 |   |                    | 83.7  | % |   | $ | 602.1 |           |  | 82.5  | % |  | $ | (91.5  | ) |  | (15.2 | )%
|Vacuum Technologies            |  |                   | 99.7  |   |                    | 16.3  |   |   |   | 127.9 |           |  | 17.5  |   |  |   | (28.2  | ) |  | (22.0 | ) 
|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |       |   
|Total company                  |  | $                 | 610.3 |   |                    | 100.0 | % |   | $ | 730.0 |           |  | 100.0 | % |  | $ | (119.7 | ) |  | (16.4 | )%
|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |       |   
|                               |  |                   |       |   |                    |      
|Operating Earnings by Segment: |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |       |   
|Scientific Instruments         |  | $                 | 44.8  |   |                    | 8.8   | % |   | $ | 54.5  |           |  | 9.1   | % |  | $ | (9.7   | ) |  | (17.7 | )%
|Vacuum Technologies            |  |                   | 19.2  |   |                    | 19.3  |   |   |   | 24.3  |           |  | 19.0  |   |  |   | (5.1   | ) |  | (20.7 | ) 
|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |       |   
|Total segments                 |  |                   | 64.0  |   |                    | 10.5  |   |   |   | 78.8  |           |  | 10.8  |   |  |   | (14.8  | ) |  | (18.6 | ) 
|General corporate              |  |                   | (10.1 | ) |                    | (1.7  | ) |   |   | (10.2 | )         |  | (1.4  | ) |  |   | 0.1    |   |  | 0.4   |   
|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |       |   
|Total company                  |  | $                 | 53.9  |   |                    | 8.8   | % |   | $ | 68.6  |           |  | 9.4   | % |  | $ | (14.7  | ) |  | (21.5 | )%
|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |       |   



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Scientific Instruments. The decrease in Scientific Instruments sales was primarily attributable to
lower sales volume of a broad range of our products and the negative impact of the stronger U.S. dollar on reported revenues. The lower volume was primarily due to the impact of the continued global economic weakness on capital equipment spending.
Sales from businesses acquired in fiscal year 2008 positively impacted reported sales by approximately 1%.



Scientific Instruments operating earnings for the first nine months of fiscal year 2009 included acquisition-related intangible amortization of $5.5
million and restructuring and other related costs of $8.5 million. In comparison, Scientific Instruments operating earnings for the first nine months of fiscal year 2008 included an acquisition-related in-process research and development charge of
$1.5 million, acquisition-related intangible amortization of $6.1 million, amortization of $1.2 million related to inventory written up in connection with certain acquisitions and restructuring and other related costs of $4.2 million. Excluding the
impact of these items, operating earnings increased as a percentage of sales due to the positive impact from efficiency improvements implemented in recent years, the benefits of cost reduction activities implemented in the second quarter of fiscal
year 2009 and the stronger U.S. dollar (which was unfavorable to reported sales but favorable to reported operating margins). The positive impact of these factors was partially offset by the negative impact of lower sales volume during the first
nine months of fiscal year 2009. Also, the first nine months of fiscal year 2008 included higher than usual costs related to the relocation of manufacturing activities for certain products and new product introductions.



Vacuum Technologies. The decrease in Vacuum Technologies sales was
driven mainly by lower sales volume of products for both industrial and life science applications, primarily due to the negative impacts of continued global economic weakness on capital equipment spending and the stronger U.S. dollar on reported
revenues.



Vacuum Technologies operating earnings for the first
nine months of fiscal year 2009 included the impact of restructuring and other related costs of $0.8 million. Excluding the impact of these costs, the increase in Vacuum Technologies operating earnings as a percentage of sales was primarily due to
the positive impact of efficiency improvements implemented in recent years, cost reduction activities implemented during the second quarter of fiscal year 2009 and the stronger U.S. dollar, partially offset by the negative impact of lower sales
volume.



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Consolidated Results



The following table presents comparisons of our sales and other selected consolidated financial results for the first nine months of fiscal years 2009 and
2008:



|                                                |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |        |   
|----------------------------------------------- |  | ----------------- | ----- | - | ------------------ | ----- | - | - | - | ----- | --------- |  | ----- | - |  | - | ------ | - |  | ------ | --
|                                                |  | Nine Months Ended |       |   | Increase(Decrease) |      
|                                                |  | July 3,2009       |       |   | June 27,2008       |       |  
|                                                |  | $                 |       |   | % ofSales          |       |   | $ |   |       | % ofSales |  |       | $ |  |   | %      |  
|(dollars in millions, except per share data)    |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |        |   
|Sales                                           |  | $                 | 610.3 |   |                    | 100.0 | % |   | $ | 730.0 |           |  | 100.0 | % |  | $ | (119.7 | ) |  | (16.4  | )%
|                                                |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |        |   
|Gross profit                                    |  |                   | 271.5 |   |                    | 44.5  |   |   |   | 326.4 |           |  | 44.7  |   |  |   | (54.9  | ) |  | (16.8  | ) 
|                                                |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |        |   
|Operating expenses:                             |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |        |   
|Selling, general and administrative             |  |                   | 174.6 |   |                    | 28.6  |   |   |   | 202.4 |           |  | 27.7  |   |  |   | (27.8  | ) |  | (13.7  | ) 
|Research and development                        |  |                   | 43.0  |   |                    | 7.1   |   |   |   | 53.9  |           |  | 7.4   |   |  |   | (10.9  | ) |  | (20.2  | ) 
|Purchased in-process research and development   |  |                   |      |   |                    |      |   |   |   | 1.5   |           |  | 0.2   |   |  |   | (1.5   | ) |  | (100.0 | ) 
|                                                |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |        |   
|Total operating expenses                        |  |                   | 217.6 |   |                    | 35.7  |   |   |   | 257.8 |           |  | 35.3  |   |  |   | (40.2  | ) |  | (15.6  | ) 
|                                                |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |        |   
|Operating earnings                              |  |                   | 53.9  |   |                    | 8.8   |   |   |   | 68.6  |           |  | 9.4   |   |  |   | (14.7  | ) |  | (21.5  | ) 
|Impairment of private company equity investment |  |                   |      |   |                    |      |   |   |   | (3.0  | )         |  | (0.4  | ) |  |   | 3.0    |   |  | 100.0  |   
|Interest income                                 |  |                   | 1.3   |   |                    | 0.2   |   |   |   | 4.9   |           |  | 0.7   |   |  |   | (3.6   | ) |  | (73.9  | ) 
|Interest expense                                |  |                   | (1.1  | ) |                    | (0.2  | ) |   |   | (1.3  | )         |  | (0.2  | ) |  |   | 0.2    |   |  | 14.3   |   
|Income tax expense                              |  |                   | (17.4 | ) |                    | (2.8  | ) |   |   | (24.5 | )         |  | (3.4  | ) |  |   | 7.1    |   |  | 28.9   |   
|                                                |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |        |   
|Net earnings                                    |  | $                 | 36.7  |   |                    | 6.0   | % |   | $ | 44.7  |           |  | 6.1   | % |  | $ | (8.0   | ) |  | (18.0  | )%
|                                                |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |        |   
|Net earnings per diluted share                  |  | $                 | 1.27  |   |                    |       |   |   | $ | 1.48  |           |  |       |   |  | $ | (0.21  | ) |  |        |   
|                                                |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |        |   |  |        |   



Sales. As
discussed under the heading Segment Results above, sales by our Scientific Instruments and Vacuum Technologies segments in the first nine months of fiscal year 2009 decreased by 15.2% and 22.0%, respectively, compared to the first nine months
of fiscal year 2008. On a consolidated basis, sales declined 16.4% in the first nine months of fiscal year 2009. This decrease was primarily related to lower sales volume of a broad range of our products due to the impact of continued global
economic weakness on capital equipment spending. Reported sales were also negatively impacted by the stronger U.S. dollar, which strengthened approximately 7% on a weighted-average basis compared to other currencies in which we sell products and
services. Sales from businesses acquired in fiscal year 2008 positively impacted reported sales by approximately 1%.



Sales by geographic region in the first nine months of fiscal years 2009 and 2008 were as follows:



|                      |  |                   |       |           |                    |   |   |   |           |  |       |   |  |   |        |   |  |       |   
|--------------------- |  | ----------------- | ----- | --------- | ------------------ | - | - | - | --------- |  | ----- | - |  | - | ------ | - |  | ----- | --
|                      |  | Nine Months Ended |       |           | Increase(Decrease) |  
|                      |  | July 3,2009       |       |           | June 27,2008       |   |  
|                      |  | $                 |       | % ofSales |                    |   | $ |   | % ofSales |  |       | $ |  |   | %      |  
|(dollars in millions) |  |                   |       |           |                    |   |   |   |           |  |       |   |  |   |        |   |  |       |   
|Geographic Region     |  |                   |       |           |                    |   |   |   |           |  |       |   |  |   |        |   |  |       |   
|North America         |  | $                 | 190.9 |           | 31.3               | % |   | $ | 232.5     |  | 31.8  | % |  | $ | (41.6  | ) |  | (17.9 | )%
|Europe                |  |                   | 236.9 |           | 38.8               |   |   |   | 299.3     |  | 41.0  |   |  |   | (62.4  | ) |  | (20.8 | ) 
|Asia Pacific          |  |                   | 148.9 |           | 24.4               |   |   |   | 153.1     |  | 21.0  |   |  |   | (4.2   | ) |  | (2.8  | ) 
|Latin America         |  |                   | 33.6  |           | 5.5                |   |   |   | 45.1      |  | 6.2   |   |  |   | (11.5  | ) |  | (25.5 | ) 
|                      |  |                   |       |           |                    |   |   |   |           |  |       |   |  |   |        |   |  |       |   
|Total company         |  | $                 | 610.3 |           | 100.0              | % |   | $ | 730.0     |  | 100.0 | % |  | $ | (119.7 | ) |  | (16.4 | )%
|                      |  |                   |       |           |                    |   |   |   |           |  |       |   |  |   |        |   |  |       |   



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Other than Scientific Instruments sales into Asia Pacific (which were essentially flat with higher sales
into China offset by lower sales into the rest of the region), sales volume decreased in all geographic regions for both Scientific Instruments and Vacuum Technologies products primarily due to the impact of continued global economic weakness on
capital equipment spending. In addition, reported sales outside North America were unfavorably impacted by the strengthening of the U.S. dollar compared to the first nine months of fiscal year 2008.



Gross Profit. Gross profit for the first nine months of fiscal
year 2009 reflects the impact of $4.6 million in amortization expense relating to acquisition-related intangible assets and $3.7 million in restructuring and other related costs. In comparison, gross profit for the first nine months of fiscal year
2008 reflects the impact of $4.9 million in amortization expense relating to acquisition-related intangible assets, amortization of $1.2 million related to inventory written up to fair value primarily in connection with certain acquisitions and $1.2
million in restructuring and other related costs. Excluding the impact of these items, gross profit as a percentage of sales increased slightly. The favorable impacts of the stronger U.S. dollar (which was favorable to reported gross profit margins
but unfavorable to reported sales), the positive impact of efficiency improvements (such as those resulting from lower-cost manufacturing and outsourcing initiatives, global procurement initiatives, and facility relocations/closures) implemented in
recent years, and the benefits from cost reduction activities implemented in the second quarter of fiscal year 2009 were largely offset by the negative impact of lower sales volume.



Selling, General and Administrative. Selling, general and administrative expenses for the first nine months of fiscal
year 2009 included $0.9 million in amortization expense relating to acquisition-related intangible assets and $4.5 million in restructuring and other related costs. In comparison, selling, general and administrative expenses for the first nine
months of fiscal year 2008 included $1.2 million in amortization expense relating to acquisition-related intangible assets and $2.3 million in restructuring and other related costs. Excluding the impact of these items, the increase in selling,
general and administrative expenses as a percentage of sales was primarily due to the negative impact of lower sales volume, partially offset by the favorable impact of the stronger U.S. dollar and cost savings achieved from restructuring activities
implemented in recent years including benefits from cost reduction activities implemented in the second quarter of fiscal year 2009.



Research and Development. Research and development expenses for the first nine months of fiscal year 2009 reflect the impact of $1.1 million
in restructuring and other related costs. In comparison, research and development expenses for the first nine months of fiscal year 2008 reflect the impact of $0.8 million in restructuring and other related costs. Excluding the impact of these
items, the decrease in research and development expenses as a percentage of sales was primarily due to the favorable impact of the stronger U.S. dollar in the first nine months of fiscal year 2009 and higher costs associated with new product
introductions and product transition activities in the first nine months of fiscal year 2008.



Purchased In-Process Research and Development. In connection with the Oxford Diffraction acquisition in the third quarter of fiscal year 2008, we recorded a one-time charge of $1.5 million to immediately
expense acquired in-process research and development related to projects that were in-process at the time of the acquisition.



Restructuring Activities. We have committed to several restructuring plans in order to improve operational efficiencies, centralize functions,
reallocate resources and reduce operating costs.From the respective inception dates of these plans through July 3, 2009, we have incurred a total of $13.3 million in restructuring expense and a total of $8.4 million in other costs
related directly to those plans (comprised primarily of employee retention and relocation costs and accelerated depreciation of assets disposed upon the closure of facilities).



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##### Table of Contents

The following table sets forth changes in our aggregate liability relating to all restructuring plans
during the first nine months of fiscal year 2009:



|                                               |  |                  |        |   |                    |   |      |       |  |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | - | ------------------ | - | ---- | ----- |  | - | ------ | -
|                                               |  | Employee-Related |        |   | Facilities-Related |   |      | Total | 
|(in thousands)                                 |  |                  |        |   |                    |   |      |       |  |   |        |  
|Balance at October 3, 2008                     |  | $                | 1,840  |   |                    | $ | 982  |       |  | $ | 2,822  |  
|Charges to (reversals of) expense, net         |  |                  | 7,397  |   |                    |   | (298 | )     |  |   | 7,099  |  
|Cash payments                                  |  |                  | (6,811 | ) |                    |   | (223 | )     |  |   | (7,034 | )
|Foreign currency impacts and other adjustments |  |                  | 200    |   |                    |   | (44  | )     |  |   | 156    |  
|                                               |  |                  |        |   |                    |   |      |       |  |   |        |  
|Balance at July 3, 2009                        |  | $                | 2,626  |   |                    | $ | 417  |       |  | $ | 3,043  |  
|                                               |  |                  |        |   |                    |   |      |       |  |   |        |  



Fiscal Year 2009
Second Quarter Plan. During the second quarter of fiscal year 2009, we committed to a plan to reduce our cost structure, primarily through headcount reductions, due to continuing uncertainties in the global economic environment.



The following table sets forth changes in our restructuring liability
relating to the foregoing plan during the first nine months of fiscal year 2009 as well as total restructuring expense and other restructuring-related costs recorded since the inception of the plan:



|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | --- | ------------------ | - | -- | ----- |  | - | ------ | -
|                                               |  | Employee-Related |        |     | Facilities-Related |   |    | Total | 
|(in thousands)                                 |  |                  |        |     |                    |   |    |       |  |   |        |  
|Balance at October 3, 2008                     |  | $                |       |     |                    | $ |   |       |  | $ |       |  
|Charges to expense, net                        |  |                  | 6,328  |     |                    |   | 19 |       |  |   | 6,347  |  
|Cash payments                                  |  |                  | (5,238 | )   |                    |   | (3 | )     |  |   | (5,241 | )
|Foreign currency impacts and other adjustments |  |                  | 177    |     |                    |   |   |       |  |   | 177    |  
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|Balance at July 3, 2009                        |  | $                | 1,267  |     |                    | $ | 16 |       |  | $ | 1,283  |  
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|                                               |  |                  |       
|Total expense since inception of plan          |  |                  |        |     |                    |   |    |       |  |   |        |  
|(in millions)                                  |  |                  |        |     |                    |   |    |       |  |   |        |  
|Restructuring expense                          |  |                  | $      | 6.3 |                   
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  
|Other restructuring-related costs              |  |                  | $      | 0.4 |                   
|                                               |  |                  |        |     |                    |   |    |       |  |   |        |  



The restructuring
expense of $6.3 million recorded during the first nine months of fiscal year 2009 related to employee termination benefits, of which $5.7 million impacted the Scientific Instruments segment and $0.6 million impacted the Vacuum Technologies segment.
We also incurred $0.4 million in other restructuring-related costs during the period, which impacted the Scientific Instruments segment and were comprised of $0.1 million in employee-related costs and a $0.3 million non-cash charge for accelerated
depreciation of assets to be disposed upon the closure of facilities. These costs are expected to be settled by the end of fiscal year 2010.



Fiscal Year 2009 First Quarter Plan. During the first quarter of fiscal year 2009, we committed to a separate plan to reduce our employee
headcount in order to reduce operating costs and increase margins.



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The following table sets forth changes in our restructuring liability relating to the foregoing plan
during the first nine months of fiscal year 2009:



|                                               |  |                  |        |   |                    |   |       |  |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | - | ------------------ | - | ----- |  | - | ------ | -
|                                               |  | Employee-Related |        |   | Facilities-Related |   | Total | 
|(in thousands)                                 |  |                  |        |   |                    |   |       |  |   |        |  
|Balance at October 3, 2008                     |  | $                |       |   |                    | $ |      |  | $ |       |  
|Charges to expense, net                        |  |                  | 1,360  |   |                    |   |      |  |   | 1,360  |  
|Cash payments                                  |  |                  | (1,183 | ) |                    |   |      |  |   | (1,183 | )
|Foreign currency impacts and other adjustments |  |                  | 36     |   |                    |   |      |  |   | 36     |  
|                                               |  |                  |        |   |                    |   |       |  |   |        |  
|Balance at July 3, 2009                        |  | $                | 213    |   |                    | $ |      |  | $ | 213    |  
|                                               |  |                  |        |   |                    |   |       |  |   |        |  
|                                               |  |                  |       
|Total expense since inception of plan          |  |                  |        |   |                    |   |       |  |   |        |  
|(in millions)                                  |  |                  |        |   |                    |   |       |  |   |        |  
|Restructuring expense                          |  | $                | 1.4    |  
|                                               |  |                  |        |   |                    |   |       |  |   |        |  
|Other restructuring-related costs              |  | $                | 0.1    |  
|                                               |  |                  |        |   |                    |   |       |  |   |        |  



The restructuring
expense of $1.4 million recorded during the first nine months of fiscal year 2009 related to employee termination benefits of which $1.2 million impacted the Scientific Instruments segment and $0.2 million impacted the Vacuum Technologies segment.
We also incurred $0.1 million in other employee-related costs during the period which impacted the Scientific Instruments segment.



Fiscal Year 2007 Plan. During the third quarter of fiscal year 2007, we committed to a plan to combine and optimize the development and assembly of
most of our nuclear magnetic resonance (NMR) and mass spectrometry products, to further centralize related administration and other functions and to reallocate certain resources toward more rapidly growing product lines and geographies.



The following table sets forth changes in our restructuring
liability relating to the foregoing plan during the first nine months of fiscal year 2009 as well as total restructuring expense and other restructuring-related costs recorded since the inception of the plan:



|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | ----- | --- | ------------------ | - | ---- | ----- |  | - | ----- | -
|                                               |  | Employee-Related |       |     | Facilities-Related |   |      | Total | 
|(in thousands)                                 |  |                  |       |     |                    |   |      |       |  |   |       |  
|Balance at October 3, 2009                     |  | $                | 1,840 |     |                    | $ | 551  |       |  | $ | 2,391 |  
|Reversals of expense, net                      |  |                  | (291  | )   |                    |   | (317 | )     |  |   | (608  | )
|Cash payments                                  |  |                  | (390  | )   |                    |   | (220 | )     |  |   | (610  | )
|Foreign currency impacts and other adjustments |  |                  | (13   | )   |                    |   | (14  | )     |  |   | (27   | )
|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  
|Balance at July 3, 2009                        |  | $                | 1,146 |     |                    | $ |     |       |  | $ | 1,146 |  
|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  
|                                               |  |                  |      
|Total expense since inception of plan          |  |                  |       |     |                    |   |      |       |  |   |       |  
|(in millions)                                  |  |                  |       |     |                    |   |      |       |  |   |       |  
|Restructuring expense                          |  |                  | $     | 3.8 |                   
|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  
|Other restructuring-related costs              |  |                  | $     | 7.2 |                   
|                                               |  |                  |       |     |                    |   |      |       |  |   |       |  



The reversals of
restructuring expense of $0.6 million recorded during the first nine months of fiscal year 2009 related to changes in estimates relating to certain employee termination benefits and the early cancellation of our lease agreement for a vacated
facility. We also incurred $1.7 million in other restructuring-related costs during the first nine months of fiscal year 2009, which were comprised of $1.2 million in employee retention



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costs and $0.5 million in facilities-related costs including decommissioning costs and a non-cash charge for accelerated depreciation of assets to be
disposed upon the closure of facilities.



Impairment of
Private Company Equity Investment.During the first nine months of fiscal year 2008, we became aware of information which raised substantial doubt about the ability of a small, private company in which we held a cost-method equity investment to
continue as a going concern. Based on this information, we determined that the fair value of our investment had declined and that the decline was other-than-temporary. As a result, we wrote off the entire $3.0 million carrying value via an
impairment charge in that period.



Interest Income.The
decrease in interest income was primarily due to lower interest rates on invested cash during the first nine months of fiscal year 2009 compared to the first nine months of fiscal year 2008.



Income Tax Expense.The effective income tax rate was 32.2% for the
first nine months of fiscal year 2009, compared to 35.4% for the first nine months of fiscal year 2008. The lower effective income tax rate in the first nine months of fiscal year 2009 was primarily due to lower U.S. taxes on foreign earnings and
lower non-deductible compensation expense. These factors were partially offset by the smaller benefit from a reduction in unrecognized tax benefits due to the lapse of certain statutes of limitations in the first nine months of fiscal year 2009
compared to the same benefit recognized in the first nine months of fiscal year 2008.



Net Earnings. Net earnings for the first nine months of fiscal year 2009 reflect the after-tax impacts of $5.5 million in pre-tax acquisition-related intangible amortization and $9.3 million in pre-tax
restructuring and other related costs. Net earnings for the first nine months of fiscal year 2008 reflect an acquisition-related in-process research and development charge of $1.5 million and the after-tax impacts of an impairment of a private
company equity investment of $3.0 million, $6.1 million in acquisition-related intangible amortization, $1.2 million in amortization related to inventory written up to fair value in connection with certain acquisitions and $4.2 million in
restructuring and other related costs. Excluding the after-tax impact of these items, the decrease in net earnings in the first nine months of fiscal year 2009 was primarily attributable to the negative impact of lower sales volume.



Recent Developments.On July 26, 2009, Varian, Inc., a Delaware
corporation (Varian), Agilent Technologies, Inc., a Delaware corporation (Agilent), and Cobalt Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Agilent (Merger Sub), entered into an
Agreement and Plan of Merger (the Merger Agreement), pursuant to which Merger Sub will, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, merge with and into Varian and Varian will survive the
merger and continue as a wholly owned subsidiary of Agilent (the Merger).



Pursuant to the terms of the Merger Agreement and subject to the conditions thereof, at the effective time of the Merger (the Effective Time), each share of common stock of Varian issued and outstanding
immediately prior to the Effective Time will be converted into the right to receive $52.00 in cash, without interest.



Varian and Agilent have made certain representations, warranties and covenants in the Merger Agreement, including, among others, covenants that, subject
to certain exceptions, (i) Varian will conduct its business in the ordinary course consistent with past practice, and refrain from taking specified actions, during the period between the execution of the Merger Agreement and the Effective Time, (ii)
the Board of Directors of Varian will recommend to its stockholders adoption of the Merger Agreement, and (iii) Varian will not solicit, initiate, seek or knowingly encourage or facilitate, any inquiry, proposal or offer from, furnish non-public
information to, or participate in any discussions with, or enter into any agreement with, any person or group regarding any alternative transaction.



The completion of the Merger is subject to various closing conditions, including obtaining the approval of Varians stockholders and receiving
antitrust approvals (including under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended).



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The Merger Agreement contains certain termination rights for both Varian and Agilent and further provides
that, upon termination of the Merger Agreement under specified circumstances, Varian may be required to pay Agilent a termination fee of $46 million.



The Boards of Directors of Varian and Agilent have approved the Merger and the Merger Agreement. In addition, concurrently with the execution of the
Merger Agreement, all directors and certain executive officers of Varian, who together held less than 1% of Varians outstanding common stock as of July 26, 2009, have entered into voting agreements whereby they agree among other things to vote
all shares of Varian common stock held by them in favor of the adoption of the Merger Agreement.



Outlook



The diversity of our products, the applications we serve and our worldwide distribution position us well. However, we are operating in difficult global economic conditions and are facing unprecedented economic uncertainties
that make it difficult for us to project our near-term results of operations. We experienced a year-over-year decline in customer orders in each of the first three quarters of fiscal year 2009. We currently expect this order weakness and
corresponding declines in revenue and earnings compared to fiscal year 2008 to continue for the remainder of the fiscal year. These conditions could further impact our business and have an adverse effect on our financial position, results of
operations and/or cash flows.In addition, the announcement and pendency of the Merger could adversely affect our business, and we have incurred and will continue to incur legal and other expenses in connection
with the pending Merger, either or both of which could have an adverse effect on our financial position, results of operations and/or cash flows.



Liquidity and Capital Resources



We generated $79.3 million of cash from operating activities in the first nine months of fiscal year 2009, compared to $59.6 million generated in the
first nine months of fiscal year 2008. The increase in operating cash flows was primarily due to the favorable impact of decreased inventory and accounts receivable balances, partially offset by decreased net earnings after adjustments for non-cash
income and expenses and decreased inventory-related liabilities. Inventory balances have declined primarily due to reduced inventory purchases to align with current revenue levels. The decrease in accounts receivable was primarily related to the
timing of collections and lower sales.



We used $17.1 million
of cash for investing activities in the first nine months of fiscal year 2009, which compares to $68.3 million used for investing activities in the first nine months of fiscal year 2008. The decrease in cash used for investing activities was
primarily the result of lower acquisition-related payment activity and cash received for the surrender of a building sublease, partially offset by increased capital expenditures. In October 2008, we entered into an agreement with VMS under which we
agreed to surrender to them the sublease for our facility in Palo Alto, California in exchange for $21.0 million in cash payments. We received a $5.0 million non-refundable first surrender payment under this agreement in the first quarter of fiscal
year 2009 and will receive the remaining $16.0 million when we fully surrender the facility in the third quarter of fiscal year 2010. The higher capital expenditures during the first nine months of fiscal year 2009 were primarily related to the
construction of our new IRD facility in Walnut Creek, California. The higher cash used for acquisition-related payments in the first nine months of fiscal year 2008 consisted primarily of cash consideration for the acquisition of the Analogix
Business in November 2007 and Oxford Diffraction in April 2008.



We used $4.8 million of cash for financing activities in the first nine months of fiscal year 2009, which compares to $69.8 million used for financing activities in the first nine months of fiscal year 2008. Cash used for financing
activities in the first nine months of fiscal year 2009 was lower primarily as a result of lower expenditures to repurchase and retire common stock (such expenditures were made in both periods as a result of an effort to reduce the number of
outstanding common shares), partially offset by lower proceeds from the issuance of common stock due to lower stock option exercise volume.



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We maintain relationships with banks in many countries from whom we sometimes obtain bank guarantees and
short-term standby letters of credit. These guarantees and letters of credit relate primarily to advance payments and deposits made to our subsidiaries by customers for which separate liabilities are recorded in the unaudited condensed consolidated
financial statements. As of July 3, 2009, a total of $21.2 million of these bank guarantees and letters of credit were outstanding. No amounts had been drawn by beneficiaries under these or any other outstanding guarantees or letters of credit
as of that date.



As of both July 3, 2009 and
October 3, 2008, we had an $18.8 million term loan outstanding with a U.S. financial institution at a fixed interest rate of 6.7%. The term loan contains 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 agreement at July 3, 2009.



In connection with certain acquisitions, we have accrued a portion of the purchase price that has been retained to secure
the sellers indemnification obligations. As of July 3, 2009, we had retained an aggregate of $1.4 million, which will become payable (net of any indemnification claims) between July and November 2009.



As of July 3, 2009, we had outstanding 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 and operational targets.



The following table summarizes contingent consideration
arrangements as of July 3, 2009:



|                           |  |                                    |  |                    |  |                            
|-------------------------- |  | ---------------------------------- |  | ------------------ |  | ---------------------------
|Acquired Company/Business  |  | RemainingAmount Available(maximum) |  | Measurement Period |  | Measurement Period End Date
|                           |  | (in millions)                      |  |                    |  |                            
|Oxford Diffraction Limited |  | $  7.0                             |  | 3 years            |  | April 2011                 
|Analogix Business          |  | 2.7                                |  | 3 years            |  | December 2010              
|Other                      |  | 0.3                                |  | 2 years            |  | July 2010                  
|                           |  |                                    |  |                    |  |                            
|Total                      |  | $10.0                              |  |                    |  |                            
|                           |  |                                    |  |                    |  |                            



The Company has
outstanding contingent consideration arrangements related to an Asset Purchase Agreement. Remaining maximum contingent amounts under this agreement were $2.6 million as of July 3, 2009.



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 13 of the Notes to the Unaudited Condensed Consolidated Financial Statements).



As discussed above under the heading Restructuring Activities, in April 2007, we committed to a plan to combine and optimize the development and
assembly of most of our NMR and mass spectrometry products, to further centralize related administration and other functions and to reallocate certain resources toward more rapidly growing product lines and geographies. In connection with this plan,
we expect to make capital expenditures of approximately $30 million, of which $26.1 million has been spent through July 3, 2009. These capital expenditures began in the fourth quarter of fiscal year 2007 and will continue through fiscal year
2009.



As of July 3, 2009, we had cancelable commitments
to a contractor for capital expenditures totaling approximately $2.4 million relating to the construction of our new IRD center in Walnut Creek, California. In the event that these commitments are canceled for reasons other than the
contractors default, we may be responsible



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for reimbursement of actual costs incurred by the contractor. We had no material non-cancelable commitments for capital expenditures as of July 3, 2009.
In the aggregate, we currently anticipate that our capital expenditures will be approximately 3.0% of sales for fiscal year 2009.



In connection with all of our restructuring plans, we expect to make cash payments for restructuring and other related costs totaling between
approximately $9 million and $11 million during fiscal year 2009, of which $8.7 million was paid during the first nine months of fiscal year 2009.



In February 2008, 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 December 31, 2009. During the first nine months of fiscal year 2009, we repurchased and retired 344,100 shares under this authorization at an aggregate cost of
$7.1 million. As of July 3, 2009, we had remaining authorization to repurchase $37.5 million of our common stock under this repurchase program. However, under the terms of the Merger Agreement with Agilent, we are generally prohibited from
repurchasing any shares of our common stock without the prior consent of Agilent.



Our liquidity is affected by many other factors, some based on the normal ongoing operations of our business and others related to external economic conditions. Our liquidity has not been materially affected by the
deterioration in the global financial markets or global economic conditions in general. However, this deterioration has adversely impacted the availability of credit to us as well as to our customers and suppliers.



We have no material exposure to market risk for changes in interest rates or
investment valuations. Our outstanding debt carries a fixed interest rate, and we invest our excess cash primarily in depository accounts and money market funds at various financial institutions. While we have not historically needed to borrow to
support working capital or capital expenditure requirements, there is no assurance that we might not need to borrow to support these requirements given global economic conditions. This could adversely affect our ability to complete acquisitions.



We nonetheless believe that cash generated from operations,
together with our current cash and cash equivalents balances and current borrowing capability, will be sufficient to satisfy our cash requirements for the next 12 months. There can be no assurance, however, that our business will continue to
generate cash flows at current levels or that credit will be available to us if and when needed. Future operating performance and our ability to obtain credit will be subject to future economic conditions and to financial, business and other
factors, including the affect of the pendency of the Merger.



Contractual
Obligations and Other Commercial Commitments



The
following table summarizes the amount and estimated timing of future cash expenditures relating to principal and interest payments on outstanding long-term debt, minimum rentals due for certain facilities and other leased assets under long-term,
non-cancelable operating leases and other long-term liabilities as of July 3, 2009:



|                                           |  |                                |       |              |   |        |  |      |       |      |   |            |  |   |       |  |   |        |  |   |        |  |   |       
|------------------------------------------ |  | ------------------------------ | ----- | ------------ | - | ------ |  | ---- | ----- | ---- | - | ---------- |  | - | ----- |  | - | ------ |  | - | ------ |  | - | ------
|                                           |  | FiscalQuarterEndingOct. 2,2009 |       | Fiscal Years |   | Total 
|                                           |  | 2010                           |       | 2011         |   | 2012   |  | 2013 |       | 2014 |   | Thereafter | 
|(in thousands)                             |  |                                |       |              |   |        |  |      |       |      |   |            |  |   |       |  |   |        |  |   |        |  |   |       
|Operating leases                           |  | $                              | 2,160 |              | $ | 6,990  |  | $    | 4,296 |      | $ | 2,480      |  | $ | 1,881 |  | $ | 1,357  |  | $ | 1,869  |  | $ | 21,033
|Long-term debt (including current portion) |  |                                |      |              |   | 6,250  |  |      |      |      |   | 6,250      |  |   |      |  |   | 6,250  |  |   |       |  |   | 18,750
|Interest on long-term debt                 |  |                                | 314   |              |   | 1,152  |  |      | 838   |      |   | 733        |  |   | 419   |  |   | 314    |  |   |       |  |   | 3,770 
|Other long-term liabilities                |  |                                |      |              |   | 2,919  |  |      | 4,090 |      |   | 4,135      |  |   | 3,234 |  |   | 2,813  |  |   | 21,278 |  |   | 38,469
|                                           |  |                                |       |              |   |        |  |      |       |      |   |            |  |   |       |  |   |        |  |   |        |  |   |       
|Total                                      |  | $                              | 2,474 |              | $ | 17,311 |  | $    | 9,224 |      | $ | 13,598     |  | $ | 5,534 |  | $ | 10,734 |  | $ | 23,147 |  | $ | 82,022
|                                           |  |                                |       |              |   |        |  |      |       |      |   |            |  |   |       |  |   |        |  |   |        |  |   |       



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As of July 3, 2009, 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 $10.0 million related to acquisitions and $2.6 million related to an Asset Purchase Agreement as discussed under
Liquidity and Capital Resources above, the specific amounts of which are not currently determinable.



Recent Accounting Pronouncements



In September 2006, the FASB issued SFAS 157, Fair Value Measurements,which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In
February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157,which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities to fiscal
years beginning after November 15, 2008, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We adopted SFAS 157 effective October 4, 2008 with the exception
of the application of the statement to nonrecurring nonfinancial assets and nonfinancial liabilities (see Note 4). We do not expect the adoption of the provisions deferred by FSP 157-2 in the first quarter of fiscal year 2010 to have a material
impact on our financial condition or results of operations.



In
December 2007, the FASB issued SFAS 141(revised 2007), Business Combinations, (SFAS 141(R)). SFAS 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all
business combinations but also provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. It also requires the recognition of assets
acquired and liabilities assumed arising from contingencies, the capitalization of in-process research and development at fair value, and the expensing of acquisition-related costs as incurred.SFAS 141(R) is effective for fiscal years
beginning after December 15, 2008. We do not expect its adoption in the first quarter of fiscal year 2010 to have a material impact on our financial condition or results of operations. However, in the event that we complete acquisitions
subsequent to our adoption of SFAS 141(R), the application of its provisions will likely have a material impact on our results of operations, although we are not currently able to estimate that impact.



In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends the accounting prescribed in SFAS 141(R) for assets and liabilities arising from contingencies in business combinations. FSP FAS 141(R)-1
requires pre-acquisition contingencies to be recognized at fair value if fair value can be reasonably determined during the measurement period. If fair value cannot be reasonably determined, the FSP requires measurement based on the recognition and
measurement criteria of SFAS 5, Accounting for Contingencies.FSP 141(R)-1 is effective for fiscal years beginning after December 15, 2008. We do not expect its adoption in the first quarter of fiscal year 2010 to have a material impact
on our financial condition or results of operations. However, in the event that we complete acquisitions subsequent to our adoption of FSP 141(R)-1, the application of its provisions will likely have a material impact on our results of operations,
although we are not currently able to estimate that impact.



In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51. SFAS 160 requires that ownership interests in subsidiaries held by parties other than the parent and
the amount of consolidated net income be clearly identified, labeled and presented in the consolidated financial statements. It also requires once a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary
be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after
December 15, 2008, and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements are applied prospectively. We do not expect the adoption of SFAS 160 to have a material
impact on our financial condition or results of operations.



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In April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible Assets,
which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of FSP 142-3 is to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets, and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), Business Combinations, and other accounting
literature. FSP 142-3 is effective for fiscal years beginning after December 15, 2008 and must be applied prospectively to intangible assets acquired after the effective date. Early adoption is prohibited. Given that FSP 142-3 applies to
intangible assets acquired after the effective date, we do not expect its adoption to have a material impact on our financial condition or results of operations.



In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities. FSP EITF 03-6-1 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and shall be included in the
computation of earnings per share under the two-class method described in SFAS 128, Earnings per Share. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, on a
retrospective basis. We do not expect the adoption of FSP EITF 03-6-1 to have a material impact on our earnings per share.



In December 2008, the FASB issued FSP 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets. FSP 132(R)-1 amends SFAS 132
(revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employers disclosures about plan assets of a defined benefit pension or other postretirement plan. This FSP is
effective for fiscal years ending after December 15, 2009. We do not expect the adoption of FSP 132(R)-1 to have a material impact on our financial condition or results of operations.



In June 2009, the FASB issued SFAS 168, The FASB Accounting Standard
Codification and the Hierarchy of the Generally Accepted Accounting Principlesa replacement of SFAS No. 162.SFAS 168 establishes the FASB Accounting Standards Codification as the single source of authoritative U.S. GAAP recognized by
the FASB to be applied by nongovernmental entities. SFAS 168 is effective for financial statements issued for interim and annual periods ending on or after September 15, 2009. We will update our disclosures to conform to the Codification in our
Annual Report on Form 10-K for the fiscal year ending October 2, 2009. We do not expect the adoption of SFAS 168 to have a material impact on our financial condition or results of operations. However, because the Codification completely
replaces existing Standards, it will affect the way U.S. GAAP is referenced in our Notes to the Consolidated Financial Statements.



|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.



During the first nine months of fiscal year 2009, we were not party to any
foreign exchange forward contracts designated as cash flow hedges of forecasted transactions.



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Our foreign exchange forward contracts generally do not extend beyond one month in original maturity. A
summary of all foreign exchange forward contracts that were outstanding as of July 3, 2009 follows:



|                  |  |                   |        |                        |   |       
|----------------- |  | ----------------- | ------ | ---------------------- | - | ------
|                  |  | NotionalValueSold |        | NotionalValuePurchased
|(in thousands)    |  |                   |        |                        |   |       
|Australian dollar |  | $                 |       |                        | $ | 49,045
|British pound     |  |                   |       |                        |   | 12,614
|Euro              |  |                   | 9,055  |                        |   |      
|Swiss franc       |  |                   |       |                        |   | 5,314 
|Japanese yen      |  |                   | 5,143  |                        |   |      
|Canadian dollar   |  |                   | 2,085  |                        |   |      
|Korean won        |  |                   | 1,774  |                        |   |      
|Indian rupee      |  |                   | 1,213  |                        |   |      
|Singapore dollar  |  |                   | 1,198  |                        |   |      
|                  |  |                   |        |                        |   |       
|Total             |  | $                 | 20,468 |                        | $ | 66,973
|                  |  |                   |        |                        |   |       



Interest Rate
Risk. We have no material exposure to market risk for changes in interest rates. We invest any excess cash primarily in depository accounts 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 July 3, 2009, 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.



Debt Obligations.



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



|                                           |  |                                |   |   |              |   |       |       |  |   |      |   |  |      |       |   |            |   |   |   |  |   |       |   |  |   |   |   |  |   |        |  
|------------------------------------------ |  | ------------------------------ | - | - | ------------ | - | ----- | ----- |  | - | ---- | - |  | ---- | ----- | - | ---------- | - | - | - |  | - | ----- | - |  | - | - | - |  | - | ------ | -
|                                           |  | FiscalQuarterEndingOct. 2,2009 |   |   | Fiscal Years |   |       | Total | 
|                                           |  | 2010                           |   |   | 2011         |   |       | 2012  |  |   | 2013 |   |  | 2014 |       |   | Thereafter |   |  
|(in thousands)                             |  |                                |   |   |              |   |       |       |  |   |      |   |  |      |       |   |            |   |   |   |  |   |       |   |  |   |   |   |  |   |        |  
|Long-term debt (including current portion) |  | $                              |  |   |              | $ | 6,250 |       |  | $ |     |   |  | $    | 6,250 |   |            | $ |  |   |  | $ | 6,250 |   |  | $ |  |   |  | $ | 18,750 |  
|Average interest rate                      |  |                                |  | % |              |   | 6.7   | %     |  |   |     | % |  |      | 6.7   | % |            |   |  | % |  |   | 6.7   | % |  |   |  | % |  |   | 6.7    | %



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



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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 and determine that these rates are reasonable. 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 and expectations relative to relevant 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 October 3, 2008, the estimated long-term rate of return on our defined benefit pension plan assets ranged from 0.8% to 7.1%
(weighted-average of 5.8%), and the assumed discount rate for our defined benefit pension plan obligations ranged from 2.0% to 6.1% (weighted-average of 6.0%).



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 $1.5 million in fiscal year 2008, $2.3 million in fiscal year 2007 and $2.3 million in fiscal year 2006, and expect our net periodic pension cost to be approximately $1.4 million in fiscal year 2009. A 100 basis
point decrease in the weighted-average estimated return on plan assets or assumed discount rate would increase our net periodic pension cost for fiscal year 2009 by $1.0 million or $0.4 million, respectively. As of October 3, 2008, our
projected benefit obligation relating to defined benefit pension plans was $47.7 million. A 100 basis point decrease in the weighted-average estimated discount rate would increase this obligation by $9.8 million.



During the second quarter of fiscal year 2009, the Company ceased future
benefit accruals to a defined benefit pension plan in the United Kingdom. In connection with this action, the Company recorded a curtailment loss of $0.1 million during the second quarter of fiscal year 2009.



|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 (for the period ended July 3, 2009), our disclosure controls and procedures were effective.



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 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 or by collusion of two or more people. 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 third quarter of our fiscal year 2009 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
|-------- | ------------



In addition to the other information set forth in this Quarterly Report on Form 10-Q, we encourage you to carefully consider the factors discussed in
Item 1ARisk Factors presented in our Annual Report on Form 10-K for the fiscal year ended October 3, 2008, which have not materially changed other than as set forth below. The following additional risks, which could materially
affect our business, financial condition or future results, are not the only risks we face. Further risks and uncertainties not currently known to us or that we currently deem to be immaterial might also affect our business, financial condition or
results of operations.



The announcement and pendency of our
agreement to be acquired by Agilent could adversely affect our business.On July 26, 2009, we entered into an Agreement and Plan Merger (the Merger Agreement) with Agilent Technologies, Inc. (Agilent) pursuant to
which a wholly-owned subsidiary of Agilent will, subject to the satisfaction or waiver of the conditions contained in the Merger Agreement, merge with and into the Company, and the Company will be the successor or surviving corporation of the merger
and will become a wholly owned subsidiary of Agilent (the Merger). Pursuant to the terms of the Merger Agreement and subject to the satisfaction or waiver of the closing conditions set forth in the Merger Agreement, at the effective time
of the Merger (the Effective Time), each share of the Companys common stock issued and outstanding immediately prior to the Effective Time will be converted into the right to receive $52.00 in cash, without interest. The
announcement and pendency of the Merger could adversely affect our business, and we have incurred and will continue to incur legal and other expenses in connection with the pending Merger, either or both of which would have an adverse effect on our
financial condition or results of operations. In addition, the announcement and pendency of the Merger could cause disruptions in our business, including affecting our relationship with our customers, vendors and employees, which could have an
adverse effect on our financial condition and results of operations.



The failure to complete the Merger could adversely affect our business.There is no assurance that the Merger with Agilent will occur. If the Merger is not completed, the share price of our common stock will change to the extent that
the current market price of our common stock reflects an assumption that a transaction will be completed. In addition, under circumstances defined in the Merger Agreement, we might be required to pay a termination fee of $46 million.



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



(c)During the fiscal quarter ended July 3, 2009, the Company repurchased and retired 4,000 shares tendered to it by employees in
settlement of employee tax withholding obligations due from those employees upon the vesting of restricted stock.



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##### Table of Contents

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



(a) Exhibits.



|           |  |                                                                                                                                            |  |                           |  |               |  |               |  |  
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- |  | ------------- |  | ------------- |  | -
|           |  |                                                                                                                                            |  | Incorporated by Reference |  | FiledHerewith
|ExhibitNo. |  | Exhibit Description                                                                                                                        |  | Form                      |  | Date          |  | ExhibitNumber | 
|           |  |                                                                                                                                            |  |                           | 
|2.1        |  | Agreement and Plan of Merger dated as of July 26, 2009, by and among Agilent Technologies, Inc., Varian, Inc. and Cobalt Acquisition Corp. |  | 8-K                       |  | July 27, 2009 |  | 2.1           |  |  
|           |  |                                                                                                                                            |  |                           | 
|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: August 11, 2009 |  |  |  | By:                       |  | /S/ G. EDWARD MCCLAMMY                                                                                                        
|                      |  |  |  |                           |  | G. Edward McClammy Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)



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