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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 January 1, 2010



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 February 3, 2010 was 29,059,664.









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##### Table of Contents

VARIAN, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY
PERIOD ENDED JANUARY 1, 2010



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 |  | 20  
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 28  
|         |  |                                                                                      
|Item 4.  |  | Controls and Procedures                                                               |  | 29  
|         |  |                                                                                      
|PART II  |  | Other Information                                                                     |  |     
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  | 31  
|         |  |                                                                                      
|Item 1A. |  | Risk Factors                                                                          |  | 31  
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 31  
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  | 31  



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 |        
|                                      |  | January 1,2010       |         |   | January 2,2009 |  
|Sales                                 |  |                      |         |   |                |   |         |  
|Products                              |  | $                    | 166,587 |   |                | $ | 175,854 |  
|Services                              |  |                      | 34,593  |   |                |   | 32,382  |  
|                                      |  |                      |         |   |                |   |         |  
|Total sales                           |  |                      | 201,180 |   |                |   | 208,236 |  
|                                      |  |                      |         |   |                |   |         |  
|Cost of sales                         |  |                      |         |   |                |   |         |  
|Products                              |  |                      | 94,588  |   |                |   | 94,523  |  
|Services                              |  |                      | 19,715  |   |                |   | 18,392  |  
|                                      |  |                      |         |   |                |   |         |  
|Total cost of sales                   |  |                      | 114,303 |   |                |   | 112,915 |  
|                                      |  |                      |         |   |                |   |         |  
|Gross profit                          |  |                      | 86,877  |   |                |   | 95,321  |  
|                                      |  |                     
|Operating expenses                    |  |                      |         |   |                |   |         |  
|Selling, general and administrative   |  |                      | 59,877  |   |                |   | 60,916  |  
|Research and development              |  |                      | 14,546  |   |                |   | 14,514  |  
|                                      |  |                      |         |   |                |   |         |  
|Total operating expenses              |  |                      | 74,423  |   |                |   | 75,430  |  
|                                      |  |                      |         |   |                |   |         |  
|Operating earnings                    |  |                      | 12,454  |   |                |   | 19,891  |  
|Interest income                       |  |                      | 530     |   |                |   | 587     |  
|Interest expense                      |  |                      | (333    | ) |                |   | (322    | )
|                                      |  |                      |         |   |                |   |         |  
|Earnings before income taxes          |  |                      | 12,651  |   |                |   | 20,156  |  
|Income tax expense                    |  |                      | 4,580   |   |                |   | 7,115   |  
|                                      |  |                      |         |   |                |   |         |  
|Net earnings                          |  | $                    | 8,071   |   |                | $ | 13,041  |  
|                                      |  |                      |         |   |                |   |         |  
|                                      |  |                     
|Net earnings per share:               |  |                      |         |   |                |   |         |  
|Basic                                 |  | $                    | 0.28    |   |                | $ | 0.45    |  
|                                      |  |                      |         |   |                |   |         |  
|Diluted                               |  | $                    | 0.28    |   |                | $ | 0.45    |  
|                                      |  |                      |         |   |                |   |         |  
|Shares used in per share calculation: |  |                      |         |   |                |   |         |  
|Basic                                 |  |                      | 28,863  |   |                |   | 28,854  |  
|                                      |  |                      |         |   |                |   |         |  
|Diluted                               |  |                      | 29,246  |   |                |   | 28,950  |  
|                                      |  |                      |         |   |                |   |         |  



See
accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.



3



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VARIAN, INC. AND SUBSIDIARY COMPANIES



UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands, except par value amounts)



|                                                                                                                                                     |  |                |         |                |   |        
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | -------------- | - | -------
|                                                                                                                                                     |  | January 1,2010 |         | October 2,2009
|ASSETS                                                                                                                                               |  |                |         |                |   |        
|Current assets                                                                                                                                       |  |                |         |                |   |        
|Cash and cash equivalents                                                                                                                            |  | $              | 229,307 |                | $ | 209,348
|Accounts receivable, net                                                                                                                             |  |                | 147,633 |                |   | 159,958
|Inventories                                                                                                                                          |  |                | 135,145 |                |   | 136,704
|Deferred taxes                                                                                                                                       |  |                | 38,461  |                |   | 38,349 
|Prepaid expenses and other current assets                                                                                                            |  |                | 13,366  |                |   | 15,488 
|                                                                                                                                                     |  |                |         |                |   |        
|Total current assets                                                                                                                                 |  |                | 563,912 |                |   | 559,847
|Property, plant and equipment, net                                                                                                                   |  |                | 110,396 |                |   | 114,363
|Goodwill                                                                                                                                             |  |                | 215,593 |                |   | 216,223
|Intangible assets, net                                                                                                                               |  |                | 26,560  |                |   | 28,334 
|Other assets                                                                                                                                         |  |                | 26,993  |                |   | 25,420 
|                                                                                                                                                     |  |                |         |                |   |        
|Total assets                                                                                                                                         |  | $              | 943,454 |                | $ | 944,187
|                                                                                                                                                     |  |                |         |                |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                 |  |                |         |                |   |        
|                                                                                                                                                     |  |               
|Current liabilities                                                                                                                                  |  |                |         |                |   |        
|Current portion of long-term debt                                                                                                                    |  | $              | 6,250   |                | $ | 6,250  
|Accounts payable                                                                                                                                     |  |                | 56,702  |                |   | 63,368 
|Deferred profit                                                                                                                                      |  |                | 10,561  |                |   | 8,935  
|Accrued liabilities                                                                                                                                  |  |                | 163,839 |                |   | 171,103
|                                                                                                                                                     |  |                |         |                |   |        
|Total current liabilities                                                                                                                            |  |                | 237,352 |                |   | 249,656
|Long-term debt                                                                                                                                       |  |                | 12,500  |                |   | 12,500 
|Deferred taxes                                                                                                                                       |  |                | 2,718   |                |   | 2,505  
|Other liabilities                                                                                                                                    |  |                | 42,980  |                |   | 41,255 
|                                                                                                                                                     |  |                |         |                |   |        
|Total liabilities                                                                                                                                    |  |                | 295,550 |                |   | 305,916
|                                                                                                                                                     |  |                |         |                |   |        
|Commitments and contingencies (Notes 2, 6, 7, 9, 10, 11, 12 and 13)                                                                                  |  |                |         |                |   |        
|                                                                                                                                                     |  |               
|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29,026 shares at January 1,
2010 and 28,971 shares at October 2, 2009 |  |                | 371,685 |                |   | 368,324
|Retained earnings                                                                                                                                    |  |                | 228,040 |                |   | 220,068
|Accumulated other comprehensive income                                                                                                               |  |                | 48,179  |                |   | 49,879 
|                                                                                                                                                     |  |                |         |                |   |        
|Total stockholders equity                                                                                                                           |  |                | 647,904 |                |   | 638,271
|                                                                                                                                                     |  |                |         |                |   |        
|Total liabilities and stockholders equity                                                                                                           |  | $              | 943,454 |                | $ | 944,187
|                                                                                                                                                     |  |                |         |                |   |        



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)



|                                                                                    |  |                      |         |   |                |   |         |  
|----------------------------------------------------------------------------------- |  | -------------------- | ------- | - | -------------- | - | ------- | -
|                                                                                    |  | Fiscal Quarter Ended |        
|                                                                                    |  | January 1,2010       |         |   | January 2,2009 |  
|Cash flows from operating activities                                                |  |                      |         |   |                |   |         |  
|Net earnings                                                                        |  | $                    | 8,071   |   |                | $ | 13,041  |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                      |         |   |                |   |         |  
|Depreciation and amortization                                                       |  |                      | 6,867   |   |                |   | 6,843   |  
|Loss (gain) on disposition of property, plant and equipment                         |  |                      | 34      |   |                |   | (27     | )
|Share-based compensation expense                                                    |  |                      | 1,232   |   |                |   | 2,366   |  
|Deferred taxes                                                                      |  |                      | 408     |   |                |   | 113     |  
|Unrealized loss (gain) on currency remeasurement                                    |  |                      | 1,449   |   |                |   | (6,686  | )
|Changes in assets and liabilities, excluding effects of acquisitions:               |  |                      |         |   |                |   |         |  
|Accounts receivable, net                                                            |  |                      | 11,505  |   |                |   | 24,570  |  
|Inventories                                                                         |  |                      | 595     |   |                |   | (7,942  | )
|Prepaid expenses and other current assets                                           |  |                      | 2,144   |   |                |   | (107    | )
|Other assets                                                                        |  |                      | (1,671  | ) |                |   | (1,029  | )
|Accounts payable                                                                    |  |                      | (5,981  | ) |                |   | (3,618  | )
|Deferred profit                                                                     |  |                      | 1,651   |   |                |   | 303     |  
|Accrued liabilities                                                                 |  |                      | (5,364  | ) |                |   | (15,619 | )
|Other liabilities                                                                   |  |                      | 1,791   |   |                |   | 4,723   |  
|                                                                                    |  |                      |         |   |                |   |         |  
|Net cash provided by operating activities                                           |  |                      | 22,731  |   |                |   | 16,931  |  
|                                                                                    |  |                      |         |   |                |   |         |  
|Cash flows from investing activities                                                |  |                      |         |   |                |   |         |  
|Proceeds from sale of property, plant and equipment                                 |  |                      | 72      |   |                |   | 5,166   |  
|Purchase of property, plant and equipment                                           |  |                      | (2,054  | ) |                |   | (6,943  | )
|Purchase of businesses, net of cash acquired                                        |  |                      | (1,455  | ) |                |   | (726    | )
|                                                                                    |  |                      |         |   |                |   |         |  
|Net cash used in investing activities                                               |  |                      | (3,437  | ) |                |   | (2,503  | )
|                                                                                    |  |                      |         |   |                |   |         |  
|Cash flows from financing activities                                                |  |                      |         |   |                |   |         |  
|Repurchase of common stock                                                          |  |                      | (215    | ) |                |   | (279    | )
|Issuance of common stock                                                            |  |                      | 2,066   |   |                |   | 909     |  
|Transfers to Varian Medical Systems, Inc.                                           |  |                      | (210    | ) |                |   | (146    | )
|                                                                                    |  |                      |         |   |                |   |         |  
|Net cash provided by financing activities                                           |  |                      | 1,641   |   |                |   | 484     |  
|                                                                                    |  |                      |         |   |                |   |         |  
|Effects of exchange rate changes on cash and cash equivalents                       |  |                      | (976    | ) |                |   | (1,878  | )
|                                                                                    |  |                      |         |   |                |   |         |  
|Net increase in cash and cash equivalents                                           |  |                      | 19,959  |   |                |   | 13,034  |  
|Cash and cash equivalents at beginning of period                                    |  |                      | 209,348 |   |                |   | 103,895 |  
|                                                                                    |  |                      |         |   |                |   |         |  
|Cash and cash equivalents at end of period                                          |  | $                    | 229,307 |   |                | $ | 116,929 |  
|                                                                                    |  |                      |         |   |                |   |         |  



See accompanying Notes to the
Unaudited Condensed Consolidated Financial Statements.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS



|Note 1. | Unaudited Interim Condensed Consolidated Financial Statements
|------- | -------------------------------------------------------------



These unaudited interim condensed consolidated financial statements of Varian, Inc. and its subsidiary
companies (collectively, the Company) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. The October 2, 2009 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 2, 2009 filed with the SEC. In the opinion of the Companys management, the unaudited interim condensed
consolidated financial statements include all normal recurring adjustments necessary to present fairly the information required to be set forth therein. The results of operations for the fiscal quarter ended January 1, 2010 are not necessarily
indicative of the results to be expected for a full year or for any other periods.



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



|Note 2. | Description of Business and Basis of Presentation
|------- | -------------------------------------------------



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



Merger Agreement.On July 26, 2009, the Company,
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 the Company and the Company 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 the
Company issued and outstanding immediately prior to the Effective Time will be converted into the right to receive $52.00 in cash, without interest.



The Company and Agilent have made certain representations, warranties and covenants in the Merger Agreement, including, among others,
covenants that, subject to certain exceptions, (i) the Company will conduct



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



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 the Company will recommend to its stockholders adoption of the Merger Agreement, and (iii) the Company 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 Merger Agreement contains certain termination rights for both the Company and Agilent and further provides
that, upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay Agilent a termination fee of $46 million.



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



On October 5, 2009, the Companys stockholders approved the Merger. The Merger remains subject to regulatory approvals and the
satisfaction or waiver of certain other closing conditions.



Fiscal Periods. The Companys fiscal years reported are the 52- or 53-week periods ending on the Friday nearest September 30. Fiscal year 2010 will comprise the 52-week period ending
October 1, 2010, and fiscal year 2009 was comprised of the 52-week period ended October 2, 2009. The fiscal quarters ended January 1, 2010 and January 2, 2009 each comprised 13 weeks.



Subsequent Events. In accordance with the Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 855, Subsequent Events, the Company has evaluated subsequent events through the time the Companys Unaudited Condensed Consolidated
Financial Statements were issued on February 5, 2010.



|Note 3. | Comprehensive Income (Loss)
|------- | ---------------------------



A summary of the components of the Companys comprehensive income (loss) follows:



|                                  |  |                      |        |   |                |   |         |  
|--------------------------------- |  | -------------------- | ------ | - | -------------- | - | ------- | -
|                                  |  | Fiscal Quarter Ended |       
|                                  |  | January 1,2010       |        |   | January 2,2009 |  
|(in thousands)                    |  |                      |        |   |                |   |         |  
|Net earnings                      |  | $                    | 8,071  |   |                | $ | 13,041  |  
|Other comprehensive loss:         |  |                      |        |   |                |   |         |  
|Currency translation adjustment   |  |                      | (1,700 | ) |                |   | (32,569 | )
|                                  |  |                      |        |   |                |   |         |  
|Total other comprehensive loss    |  |                      | (1,700 | ) |                |   | (32,569 | )
|                                  |  |                      |        |   |                |   |         |  
|Total comprehensive income (loss) |  | $                    | 6,371  |   |                | $ | (19,528 | )
|                                  |  |                      |        |   |                |   |         |  



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



Effective October 3, 2009 (the first day of fiscal year 2010) the Company adopted ASC 820, Fair Value Measurements and
Disclosures, for certain non-recurring nonfinancial assets and nonfinancial liabilities.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



Fair Value Hierarchy.ASC 820 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.



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



Financial assets measured at fair value on a recurring basis as
of January 1, 2010 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) |  | $                                                          | 59,283 |                                            | $ |                                       |  | $     |  |  | $ | 59,283
|                                      |  |                                                            |        |                                            |   |                                        |  |       |   |  |   |       
|Total financial assets                |  | $                                                          | 59,283 |                                            | $ |                                       |  | $     |  |  | $ | 59,283
|                                      |  |                                                            |        |                                            |   |                                        |  |       |   |  |   |       



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
|------- | --------------------



|                        |  |                |         |   |                |   |         |  
|----------------------- |  | -------------- | ------- | - | -------------- | - | ------- | -
|                        |  | January 1,2010 |         |   | October 2,2009 |  
|(in thousands)          |  |                |         |   |                |   |         |  
|Inventories             |  |                |         |   |                |   |         |  
|Raw materials and parts |  | $              | 60,644  |   |                | $ | 60,222  |  
|Work in process         |  |                | 22,998  |   |                |   | 22,596  |  
|Finished goods          |  |                | 51,503  |   |                |   | 53,886  |  
|                        |  |                |         |   |                |   |         |  
|Total                   |  | $              | 135,145 |   |                | $ | 136,704 |  
|                        |  |                |         |   |                |   |         |  
|                        |  |               
|Deferred profit         |  |                |         |   |                |   |         |  
|Revenue                 |  | $              | 23,808  |   |                | $ | 20,601  |  
|                        |  |                |         |   |                |   |         |  
|Cost of sales           |  | $              | (13,247 | ) |                | $ | (11,666 | )
|                        |  |                |         |   |                |   |         |  



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



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.



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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 quarters ended January 1, 2010 and
January 2, 2009, the Company recognized net foreign currency gains of $0.7 million and losses of $1.1 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 January 1, 2010, the Company had foreign exchange forward contracts to purchase the U.S. dollar equivalent of $58.3 million and to
sell the U.S. dollar equivalent of $12.8 million in various foreign currencies.



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



Effective October 3, 2009 (the first day of fiscal year 2010), the Company adopted revised accounting standards for business
combinations. These revised standards generally require an entity to recognize the assets acquired, liabilities assumed, contingencies and contingent consideration at their fair value on the acquisition date. The adoption of the revised standards
had no financial impact on the Companys financial condition or results of operations. The new guidance is only applicable to acquisitions completed after the adoption date with the exception of certain tax contingencies and adjustments to
valuation allowances, which previously were adjusted to goodwill but must now be adjusted to income tax expense regardless of the date of the original acquisition.



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 January 1, 2010, up to a maximum of $10.1 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 contingent
consideration arrangements as of January 1, 2010:



|                           |  |                                    |   |  |                    |  |                            
|-------------------------- |  | ---------------------------------- | - |  | ------------------ |  | ---------------------------
|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          |  | 2.8                                |   |  | 3 years            |  | December 2010              
|Other                      |  | 0.3                                |   |  | 2 years            |  | July 2010                  
|                           |  |                                    |   |  |                    |  |                            
|Total                      |  | $10.1                              |   |  |                    |  |                            
|                           |  |                                    |   |  |                    |  |                            



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



During the first quarter of fiscal year 2010, the Company made a cash payment of $1.3
million which was accrued as part of the purchase price to secure the sellers indemnification obligations in connection with the acquisition of the Analogix Business in fiscal year 2007.



|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 quarter of fiscal year 2010 were as
follows:



|                                               |  |                       |         |   |                    |   |              |  |   |         |  
|---------------------------------------------- |  | --------------------- | ------- | - | ------------------ | - | ------------ |  | - | ------- | -
|                                               |  | ScientificInstruments |         |   | VacuumTechnologies |   | TotalCompany | 
|(in thousands)                                 |  |                       |         |   |                    |   |              |  |   |         |  
|Balance as of October 2, 2009                  |  | $                     | 215,257 |   |                    | $ | 966          |  | $ | 216,223 |  
|Contingent payments on prior-year acquisitions |  |                       | 131     |   |                    |   |             |  |   | 131     |  
|Foreign currency impacts and other adjustments |  |                       | (761    | ) |                    |   |             |  |   | (761    | )
|                                               |  |                       |         |   |                    |   |              |  |   |         |  
|Balance as of January 1, 2010                  |  | $                     | 214,627 |   |                    | $ | 966          |  | $ | 215,593 |  
|                                               |  |                       |         |   |                    |   |              |  |   |         |  



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



|                            |  |                 |        |                         |   |         |     |  |   |       
|--------------------------- |  | --------------- | ------ | ----------------------- | - | ------- | --- |  | - | ------
|                            |  | January 1, 2010
|                            |  | Gross           |        | AccumulatedAmortization |   |         | Net
|(in thousands)              |  |                 |        |                         |   |         |     |  |   |       
|Intangible assets           |  |                 |        |                         |   |         |     |  |   |       
|Existing technology         |  | $               | 16,275 |                         | $ | (12,292 | )   |  | $ | 3,983 
|Patents and core technology |  |                 | 38,444 |                         |   | (18,379 | )   |  |   | 20,065
|Trade names and trademarks  |  |                 | 2,474  |                         |   | (2,156  | )   |  |   | 318   
|Customer lists              |  |                 | 13,014 |                         |   | (11,339 | )   |  |   | 1,675 
|Other                       |  |                 | 3,196  |                         |   | (2,677  | )   |  |   | 519   
|                            |  |                 |        |                         |   |         |     |  |   |       
|Total                       |  | $               | 73,403 |                         | $ | (46,843 | )   |  | $ | 26,560
|                            |  |                 |        |                         |   |         |     |  |   |       
|                            | 
|                            |  | October 2, 2009
|                            |  | Gross           |        | AccumulatedAmortization |   |         | Net
|(in thousands)              |  |                 |        |                         |   |         |     |  |   |       
|Intangible assets           |  |                 |        |                         |   |         |     |  |   |       
|Existing technology         |  | $               | 16,244 |                         | $ | (11,738 | )   |  | $ | 4,506 
|Patents and core technology |  |                 | 38,515 |                         |   | (17,349 | )   |  |   | 21,166
|Trade names and trademarks  |  |                 | 2,400  |                         |   | (2,120  | )   |  |   | 280   
|Customer lists              |  |                 | 12,996 |                         |   | (11,173 | )   |  |   | 1,823 
|Other                       |  |                 | 3,227  |                         |   | (2,668  | )   |  |   | 559   
|                            |  |                 |        |                         |   |         |     |  |   |       
|Total                       |  | $               | 73,382 |                         | $ | (45,048 | )   |  | $ | 28,334
|                            |  |                 |        |                         |   |         |     |  |   |       



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



Amortization expense relating to intangible assets was $1.8 million and $2.1 million
during the fiscal quarters ended January 1, 2010 and January 2, 2009, respectively. At January 1, 2010, estimated amortization expense for the remainder of fiscal year 2010 and for each of the five succeeding fiscal years and
thereafter follows:



|                                   |  |   |       
|---------------------------------- |  | - | ------
|(in thousands)                     |  |   |       
|Estimated amortization expense     |  |   |       
|Nine months ending October 1, 2010 |  | $ | 5,413 
|Fiscal year 2011                   |  |   | 5,020 
|Fiscal year 2012                   |  |   | 4,063 
|Fiscal year 2013                   |  |   | 3,536 
|Fiscal year 2014                   |  |   | 3,368 
|Fiscal year 2015                   |  |   | 3,264 
|Thereafter                         |  |   | 1,896 
|                                   |  |   |       
|Total                              |  | $ | 26,560
|                                   |  |   |       



|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 restructuring liability relating to all ongoing restructuring plans during the first quarter of fiscal year 2010 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 2, 2009                     |  | $                | 579  |      |                      | $ | 398 |                                      |  | $ | 977  |  
|Charges to expense, net                        |  |                  | 34   |      |                      |   |    |                                      |  |   | 34   |  
|Cash payments                                  |  |                  | (248 | )    |                      |   | (10 | )                                    |  |   | (258 | )
|Foreign currency impacts and other adjustments |  |                  | (2   | )    |                      |   | (2  | )                                    |  |   | (4   | )
|                                               |  |                  |      |      |                      |   |     |                                      |  |   |      |  
|Balance at January 1, 2010                     |  | $                | 363  |      |                      | $ | 386 |                                      |  | $ | 749  |  
|                                               |  |                  |      |      |                      |   |     |                                      |  |   |      |  
|                                               |  |                  |     
|Total expense since inception of plans         |  |                  |      |      |                      |   |     |                                      |  |   |      |  
|                                               |  |                  |      |      | RestructuringExpense |   |     | OtherRestructuring-related Costs (1) | 
|(in millions)                                  |  |                  |      |      |                      |   |     |                                      |  |   |      |  
|Fiscal Year 2009 Second Quarter Plan           |  |                  | $    | 6.1  |                      |   | $   | 1.1                                  | 
|Fiscal Year 2009 First Quarter Plan            |  |                  |      | 1.4  |                      |   |     | 0.1                                  | 
|Fiscal Year 2007 Plan                          |  |                  |      | 2.9  |                      |   |     | 8.7                                  | 
|Fiscal Year 2005 Plan                          |  |                  |      | 1.8  |                      |   |     | 0.7                                  | 
|                                               |  |                  |      |      |                      |   |     |                                      |  |   |      |  
|Total                                          |  |                  | $    | 12.2 |                      |   | $   | 10.6                                 | 
|                                               |  |                  |      |      |                      |   |     |                                      |  |   |      |  



|(1) | These costs related primarily to employee retention and relocation costs and accelerated depreciation of assets disposed upon the closure of facilities. Of the $10.6
million in other restructuring-related costs, $0.7 million was recorded in the first quarter of fiscal year 2010 which primarily related to the fiscal year 2007 restructuring plan.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



|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 are established and charged to cost of sales at the time the related sale is recognized. The amount of liability to be recorded is based on managements best estimates of future warranty costs after considering historical
and projected product failure rates and product repair costs.



Changes in the Companys estimated liability for product warranty during the fiscal quarters ended January 1, 2010 and January 2, 2009 follow:



|                                            |  |                      |        |   |                |   |        |  
|------------------------------------------- |  | -------------------- | ------ | - | -------------- | - | ------ | -
|                                            |  | Fiscal Quarter Ended |       
|                                            |  | January 1,2010       |        |   | January 2,2009 |  
|(in thousands)                              |  |                      |        |   |                |   |        |  
|Beginning balance                           |  | $                    | 13,273 |   |                | $ | 13,867 |  
|Charges to costs and expenses               |  |                      | 4,864  |   |                |   | 5,037  |  
|Warranty expenditures and other adjustments |  |                      | (4,889 | ) |                |   | (5,720 | )
|                                            |  |                      |        |   |                |   |        |  
|Ending balance                              |  | $                    | 13,248 |   |                | $ | 13,184 |  
|                                            |  |                      |        |   |                |   |        |  



Indemnification
Obligations. ASC 460, Guarantees, 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 ASC 460 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. These indemnification obligations cover certain aspects of the Companys conduct of the Electronics
Manufacturing Business prior to its sale to Jabil, including, but not limited to, employee, tax, litigation and environmental matters. The agreement containing these indemnification obligations is disclosed as an exhibit to the Companys Annual
Report on Form 10-K. 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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VARIAN, INC. AND SUBSIDIARY COMPANIES



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 sometimes also agrees to indemnify these parties against claims related to undiscovered liabilities, additional product liability or environmental obligations. Claims made
under such indemnification obligations have been insignificant and the estimated fair value of these indemnification obligations is not considered to be material.



|Note 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 January 1, 2010, a total of $13.8 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 January 1, 2010 and October 2, 2009, 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 January 1, 2010.



The following table
summarizes future principal payments on borrowings under long-term debt outstanding as of January 1, 2010:



|                            |  |                             |       |              |      |   |      |   |       |  |      |   |            |   |       |  |   |   |  |   |   |  |   |       
|--------------------------- |  | --------------------------- | ----- | ------------ | ---- | - | ---- | - | ----- |  | ---- | - | ---------- | - | ----- |  | - | - |  | - | - |  | - | ------
|                            |  | NineMonthsEndingOct. 1,2010 |       | Fiscal Years |      |  
|                            |  |                             | 2011  |              | 2012 |   | 2013 |   | 2014  |  | 2015 |   | Thereafter |   | Total
|(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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VARIAN, INC. AND SUBSIDIARY COMPANIES



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 |     
|                                                                  |  | January 1,           |      |   | January 2, |  
|                                                                  |  | 2010                 |      |   | 2009       |  
|(in thousands)                                                    |  |                      |      |   |            |   |      |  
|Service cost                                                      |  | $                    | 133  |   |            | $ | 249  |  
|Interest cost                                                     |  |                      | 679  |   |            |   | 705  |  
|Expected return on plan assets                                    |  |                      | (511 | ) |            |   | (570 | )
|Amortization of prior service cost and actuarial gains and losses |  |                      | (1   | ) |            |   | 17   |  
|                                                                  |  |                      |      |   |            |   |      |  
|Net periodic pension cost                                         |  | $                    | 300  |   |            | $ | 401  |  
|                                                                  |  |                      |      |   |            |   |      |  



Employer Contributions.
During the fiscal quarter ended January 1, 2010, the Company made contributions totaling approximately $0.1 million to its defined benefit pension plans. The Company currently anticipates contributing an additional $0.2 million to these plans
in the remaining nine months of fiscal year 2010.



|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.



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 VAI facility where the likelihood and scope of further environmental-related activities are difficult to assess. As of January 1, 2010, it was nonetheless
estimated that the Companys future exposure for these environmental-related costs ranged in the aggregate from $1.0 million to $2.5 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 January 1, 2010. 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 $1.0 million as of January 1, 2010 for these future environmental-related costs.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



Sufficient knowledge has been gained to be able to better estimate other costs for
future environmental-related activities. As of January 1, 2010, it was estimated that the Companys future costs for these environmental-related activities ranged in the aggregate from $2.5 million to $12.7 million. The time frame over
which these costs are expected to be incurred varies, ranging up to approximately 30 years as of January 1, 2010. 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 $5.5 million at January 1, 2010. 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 $4.0 million as of January 1, 2010, which represents its best estimate of these future environmental-related costs after discounting estimated recurring future costs. This accrual is in
addition to the $1.0 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
January 1, 2010, 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
|-------- | ------------------------------------



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 |      
|                                                                                |  | January 1,2010       |       |   | January 2,2009 |  
|(in thousands)                                                                  |  |                      |       |   |                |   |       |  
|Share-based compensation expense by award type:                                 |  |                      |       |   |                |   |       |  
|Employee and non-employee director stock options                                |  | $                    | 799   |   |                | $ | 1,365 |  
|Employee stock purchase plan                                                    |  |                      |      |   |                |   | 336   |  
|Restricted (nonvested) stock                                                    |  |                      | 433   |   |                |   | 665   |  
|                                                                                |  |                      |       |   |                |   |       |  
|Total share-based compensation expense (effect on earnings before income taxes) |  |                      | 1,232 |   |                |   | 2,366 |  
|Effect on income tax expense                                                    |  |                      | (430  | ) |                |   | (773  | )
|                                                                                |  |                      |       |   |                |   |       |  
|Effect on net earnings                                                          |  | $                    | 802   |   |                | $ | 1,593 |  
|                                                                                |  |                      |       |   |                |   |       |  



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



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



Share-based compensation expense in the preceding table related to restricted
(nonvested) stock includes $35,000 in the fiscal quarter ended January 1, 2010 and $104,000 in the fiscal quarter ended January 2, 2009, 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
|                                    |  | January 1,2010       |       | January 2,2009
|(in thousands)                      |  |                      |       |                |   |      
|Cost of sales                       |  | $                    | 63    |                | $ | 133  
|Selling, general and administrative |  |                      | 1,108 |                |   | 2,119
|Research and development            |  |                      | 61    |                |   | 114  
|                                    |  |                      |       |                |   |      
|Total                               |  | $                    | 1,232 |                | $ | 2,366
|                                    |  |                      |       |                |   |      



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, 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). Options granted generally become exercisable in cumulative installments of one-third each year commencing one year following the date of grant. In accordance
with covenants of the Merger Agreement, the Company did not grant any stock options under the OSP during the first quarter of fiscal year 2010.



The following table summarizes stock option activity under the OSP for the fiscal quarter ended January 1, 2010:



|                               |  |                |   |  |                              |      
|------------------------------ |  | -------------- | - |  | ---------------------------- | -----
|                               |  | Shares         |   |  | WeightedAverageExercisePrice
|                               |  | (in thousands) |   |  |                             
|Outstanding at October 2, 2009 |  | 1,786          |   |  | $                            | 43.80
|Exercised                      |  | (38            | ) |  | $                            | 36.85
|Cancelled or expired           |  | (4             | ) |  | $                            | 46.30
|                               |  |                |   |  |                              |      
|Outstanding at January 1, 2010 |  | 1,744          |   |  | $                            | 43.94
|                               |  |                |   |  |                              |      



As of January 1,
2010, the unrecognized share-based compensation balance related to stock options was $2.4 million. This amount will be recognized as expense using the straight-line attribution method over a 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 as of the grant date. These amounts are recognized by the Company as share-based compensation expense ratably over their
respective vesting periods, which range from one to three years. In accordance with covenants of the Merger Agreement, the Company did not grant any restricted (nonvested) common stock under the OSP during the first quarter of fiscal year 2010.



16



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



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



The following table summarizes restricted (nonvested) common stock activity under the
OSP for the fiscal quarter ended January 1, 2010:



|                                            |  |                |   |  |                                    |      
|------------------------------------------- |  | -------------- | - |  | ---------------------------------- | -----
|                                            |  | Shares         |   |  | WeightedAverageGrantDate FairValue
|                                            |  | (in thousands) |   |  |                                   
|Outstanding and unvested at October 2, 2009 |  | 156            |   |  | $                                  | 32.51
|Vested(1)                                   |  | (24            | ) |  | $                                  | 55.91
|Forfeited                                   |  |               |   |  | $                                  |     
|                                            |  |                |   |  |                                    |      
|Outstanding and unvested at January 1, 2010 |  | 132            |   |  | $                                  | 28.34
|                                            |  |                |   |  |                                    |      



|(1) | Includes shares tendered to the Company by employees in settlement of employee tax withholding obligations.
|--- | -----------------------------------------------------------------------------------------------------------



As of January 1, 2010, there was a total of $2.4 million in
unrecognized share-based compensation expense related to restricted stock granted under the OSP. This expense will be recognized over a weighted-average amortization period of 1.9 years.



Employee Stock Purchase Plan.During the fiscal quarter ended January 1, 2010, employees purchased
approximately 21,100 shares for $0.7 million under the Companys Employee Stock Purchase Plan (ESPP). During the fiscal quarter ended January 2, 2009, employees purchased approximately 27,100 shares for $0.9 million under the
ESPP. On the first day of fiscal year 2010, the Company suspended future purchases under the ESPP in accordance with covenants of the Merger Agreement.



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. During the fiscal quarter ended January 1, 2010, the Company did not repurchase any shares of its common stock under this authorization. This
repurchase program expired on December 31, 2009.



Other Stock Repurchases.During the fiscal quarter ended January 1, 2010, 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.



|Note 15. | 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. 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 16. | 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



17



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



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



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, nonvested 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.



For the fiscal quarters ended
January 1, 2010 and January 2, 2009, options to purchase 293,000 and 1,790,000 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
|                                              |  | January 1,2010       |  | January 2,2009
|(in thousands)                                |  |                      |  |               
|Weighted-average basic shares outstanding     |  | 28,863               |  | 28,854        
|Net effect of dilutive potential common stock |  | 383                  |  | 96            
|                                              |  |                      |  |               
|Weighted-average diluted shares outstanding   |  | 29,246               |  | 28,950        
|                                              |  |                      |  |               



During the first quarter of fiscal year 2010, the Company adopted ASC 260-10-45 to 65, Earnings per Share, which addresses whether nonvested instruments granted in share-based payment transactions
that contain non-forfeitable rights to dividends or dividend equivalents are participating securities subject to the two-class method of computing earnings per share. Although our nonvested restricted stock awards are considered participating
securities, they are not material as compared with total weighted average diluted shares outstanding and are therefore not presented using the two-class method.



|Note 17. | 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 ASC 280, Segment Reporting.



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. 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.



18



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



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



|                        |  |                      |       |                      |   |                |  |   |                |   |  |   |      |  
|----------------------- |  | -------------------- | ----- | -------------------- | - | -------------- |  | - | -------------- | - |  | - | ---- | -
|                        |  | Sales                |       | Pretax Earnings      |  
|                        |  | Fiscal Quarter Ended |       | Fiscal Quarter Ended |  
|                        |  | January 1,2010       |       | January 2,2009       |   | January 1,2010 |  |   | January 2,2009 |  
|(in millions)           |  |                      |       |                      |   |                |  |   |                |   |  |   |      |  
|Scientific Instruments  |  | $                    | 166.6 |                      | $ | 171.8          |  | $ | 9.4            |   |  | $ | 16.4 |  
|Vacuum Technologies     |  |                      | 34.6  |                      |   | 36.4           |  |   | 7.1            |   |  |   | 7.1  |  
|                        |  |                      |       |                      |   |                |  |   |                |   |  |   |      |  
|Total industry segments |  |                      | 201.2 |                      |   | 208.2          |  |   | 16.5           |   |  |   | 23.5 |  
|General corporate       |  |                      |      |                      |   |               |  |   | (4.0           | ) |  |   | (3.6 | )
|Interest income         |  |                      |      |                      |   |               |  |   | 0.5            |   |  |   | 0.6  |  
|Interest expense        |  |                      |      |                      |   |               |  |   | (0.3           | ) |  |   | (0.3 | )
|                        |  |                      |       |                      |   |                |  |   |                |   |  |   |      |  
|Total                   |  | $                    | 201.2 |                      | $ | 208.2          |  | $ | 12.7           |   |  | $ | 20.2 |  
|                        |  |                      |       |                      |   |                |  |   |                |   |  |   |      |  



|Note 18. | Recent Accounting Standards
|-------- | ---------------------------



In December 2008, the FASB issued additional disclosure requirements for plan assets of a defined benefit pension or other postretirement
plan. The required disclosures include a description of the Companys investment policies and strategies, the fair value of each major category of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets,
the effect of fair value measurements using significant unobservable inputs on changes in plan assets and the significant concentrations of risk within plan assets. These additional disclosures are effective for annual disclosure for fiscal years
ending after December 15, 2009. The Company does not expect the adoption of the new disclosure requirements to have a material impact on its financial condition or results of operations.



In October 2009, the FASB issued two new accounting standards
that provide guidance for revenue recognition. The first standard revises guidance for arrangements with multiple deliverables. This accounting standard replaces the term fair value in the revenue recognition allocation guidance with selling price
and establishes a hierarchy for determining the selling price of a deliverable. The selling price of each deliverable will first be based on vendor specific objective evidence (VSOE) if available, second on third-party evidence
(TPE) if VSOE is not available and third on estimated selling price if neither VSOE nor TPE is available. In addition, the residual method is no longer permitted as vendors are now required to allocate arrangement consideration using the
relative selling price method. The second new accounting standard excludes from the scope of software revenue recognition software components contained in, and essential to the functionality of, tangible products. These two new accounting standards
require expanded qualitative and quantitative disclosures and are effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not
expect the adoption of these accounting standards in the first quarter of fiscal year 2011 to have a material impact on its financial condition or results of operations.



In January 2010, the FASB issued an accounting standard update that clarifies and provides additional disclosure requirements
related to recurring and non-recurring fair value measurements and employers disclosures about postretirement benefit plan assets. These additional disclosures are effective for interim and annual reporting periods beginning after
December 15, 2009. The Company does not expect the adoption of this accounting standard update in the second quarter of fiscal year 2010 to have a material impact on its financial condition or results of operations.



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##### Table of Contents

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



Caution Regarding Forward-Looking Statements



Throughout this Report, and particularly in this
Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations, there are forward-looking statements that are based upon our current expectations, estimates and projections and that reflect our
beliefs and assumptions based upon information available to us at the date of this Report. In some cases, you can identify these statements by words such as may, might, will, should,
expects, plans, anticipates, believes, estimates, predicts, potential or continue, and other similar terms. These forward-looking statements include (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 capital expenditures in fiscal year 2010.



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 2, 2009. We encourage you to read that section carefully.



Other risks and uncertainties that could cause actual results to differ materially from those in our forward-looking statements include, but
are not limited to, the following: the pace and extent of improvements in global economic conditions; 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 or applied research and other applications; whether we can achieve sales growth in Europe, North America, Asia Pacific 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 or earnings; whether we will see continued investment in capital equipment, in particular given the global liquidity and credit
conditions; demand from customers that operate in cyclical industries; the extent to which global liquidity and credit conditions impact the collectability of accounts receivable from our customers; the extent and timing of government funding for
research; the actual costs, timing and benefits of restructuring activities (such as our previously announced employee reductions, our Northern California operations consolidation and other actions) and other efficiency improvement activities (such
as our global procurement, lower-cost manufacturing and outsourcing initiatives); 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, including the recently announced
undertaking to divest certain of the Companys product lines in order to secure regulatory approval to complete 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.



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##### Table of Contents

Results of Operations



First Quarter of Fiscal Year 2010 Compared to First Quarter of Fiscal Year 2009



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 first quarter of fiscal years 2010
and 2009:



|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |   
|------------------------------ |  | -------------------- | ----- | - | ------------------ | ----- | - | - | - | ----- | --------- |  | ----- | - |  | - | ---- | - |  | ----- | --
|                               |  | Fiscal Quarter Ended |       |   | Increase(Decrease) |      
|                               |  | January 1, 2010      |       |   | January 2, 2009    |       |  
|                               |  | $                    |       |   | % ofSales          |       |   | $ |   |       | % ofSales |  |       | $ |  |   | %    |  
|(dollars in millions)          |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |   
|Sales by Segment:              |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |   
|Scientific Instruments         |  | $                    | 166.6 |   |                    | 82.8  | % |   | $ | 171.8 |           |  | 82.5  | % |  | $ | (5.2 | ) |  | (3.0  | )%
|Vacuum Technologies            |  |                      | 34.6  |   |                    | 17.2  |   |   |   | 36.4  |           |  | 17.5  |   |  |   | (1.8 | ) |  | (5.0  | ) 
|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |   
|Total company                  |  | $                    | 201.2 |   |                    | 100.0 | % |   | $ | 208.2 |           |  | 100.0 | % |  | $ | (7.0 | ) |  | (3.4  | )%
|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |   
|                               |  |                      |       |   |                    |      
|Operating Earnings by Segment: |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |   
|Scientific Instruments         |  | $                    | 9.4   |   |                    | 5.7   | % |   | $ | 16.4  |           |  | 9.6   | % |  | $ | (7.0 | ) |  | (42.6 | )%
|Vacuum Technologies            |  |                      | 7.1   |   |                    | 20.6  |   |   |   | 7.1   |           |  | 19.3  |   |  |   |     |   |  |      |   
|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |   
|Total segments                 |  |                      | 16.5  |   |                    | 8.2   |   |   |   | 23.5  |           |  | 11.3  |   |  |   | (7.0 | ) |  | (29.5 | ) 
|General corporate              |  |                      | (4.0  | ) |                    | (2.0  | ) |   |   | (3.6  | )         |  | (1.7  | ) |  |   | (0.4 | ) |  | (14.5 | ) 
|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |   
|Total company                  |  | $                    | 12.5  |   |                    | 6.2   | % |   | $ | 19.9  |           |  | 9.6   | % |  | $ | (7.4 | ) |  | (37.4 | )%
|                               |  |                      |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |   



Scientific
Instruments. The decrease in Scientific Instruments sales was primarily attributable to lower sales volume and lower average selling prices of certain analytical instruments products partly offset by increased sales volume of our research
products and consumables products. The weaker U.S. dollar had a positive impact on reported revenues. Revenue in the first quarter of fiscal year 2010 was affected by the negative impact of customers uncertainty and employee and other
disruptions related to the announcement and pendency of the acquisition by Agilent (particularly for analytical instruments products) and by the impact of continued global economic weakness on capital equipment spending. The increase in research
products revenue was primarily due to unusually low sales of these products in the prior year quarter caused primarily by delays related to laboratory readiness and access to customer sites, duration of installations and availability of key
components or installation personnel.



Scientific
Instruments operating earnings for the first quarter of fiscal year 2010 included $1.8 million of costs resulting from the pending acquisition by Agilent, acquisition-related intangible amortization of $1.8 million and restructuring and other
related costs of $0.7 million. In comparison, Scientific Instruments operating earnings for the first quarter of fiscal year 2009 included acquisition-related intangible amortization of $2.1 million and restructuring and other related costs of $1.6
million. Excluding the impact of these items, operating earnings decreased as a percentage of sales primarily due to the negative impact of product mix and lower average selling prices for certain analytical instruments products and the weaker U.S.
dollar (which was favorable to reported sales but unfavorable to reported operating margins), partially offset by cost reduction activities implemented in the second quarter of fiscal year 2009.



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 impact of continued global economic weakness on capital equipment spending, partly offset by the positive impact of the
weaker U.S. dollar on reported revenues.



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##### Table of Contents

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



Consolidated
Results



The following table presents
comparisons of our sales and other selected consolidated financial results for the first quarter of fiscal years 2010 and 2009:



|                                             |  |                      |       |   |                |       |   |                    |   |       |       |  |       |   |  |   |       |   |  |       |   
|-------------------------------------------- |  | -------------------- | ----- | - | -------------- | ----- | - | ------------------ | - | ----- | ----- |  | ----- | - |  | - | ----- | - |  | ----- | --
|                                             |  | Fiscal Quarter Ended |       |   |                |       |   |                    |  
|                                             |  | January 1,2010       |       |   | January 2,2009 |       |   | Increase(Decrease) |  
|                                             |  |                      |       |   | % of           |       |   |                    |   |       | % of  |  |       |   |  |   |       |  
|                                             |  | $                    |       |   | Sales          |       |   | $                  |   |       | Sales |  |       | $ |  |   | %     |  
|(dollars in millions, except per share data) |  |                      |       |   |                |       |   |                    |   |       |       |  |       |   |  |   |       |   |  |       |   
|Sales:                                       |  | $                    | 201.2 |   |                | 100.0 | % |                    | $ | 208.2 |       |  | 100.0 | % |  | $ | (7.0  | ) |  | (3.4  | )%
|                                             |  |                      |       |   |                |       |   |                    |   |       |       |  |       |   |  |   |       |   |  |       |   
|Gross profit                                 |  |                      | 86.9  |   |                | 43.2  |   |                    |   | 95.3  |       |  | 45.8  |   |  |   | (8.4  | ) |  | (8.9  | ) 
|                                             |  |                      |       |   |                |       |   |                    |   |       |       |  |       |   |  |   |       |   |  |       |   
|Operating expenses:                          |  |                      |       |   |                |       |   |                    |   |       |       |  |       |   |  |   |       |   |  |       |   
|Selling, general and administrative          |  |                      | 59.9  |   |                | 29.8  |   |                    |   | 60.9  |       |  | 29.2  | % |  |   | (1.0  | ) |  | (1.7  | ) 
|Research and development                     |  |                      | 14.5  |   |                | 7.2   |   |                    |   | 14.5  |       |  | 7.0   |   |  |   |      |   |  |      |   
|                                             |  |                      |       |   |                |       |   |                    |   |       |       |  |       |   |  |   |       |   |  |       |   
|Total operating expenses                     |  |                      | 74.4  |   |                | 37.0  |   |                    |   | 75.4  |       |  | 36.2  |   |  |   | (1.0  | ) |  | (1.3  | ) 
|                                             |  |                      |       |   |                |       |   |                    |   |       |       |  |       |   |  |   |       |   |  |       |   
|Operating earnings                           |  |                      | 12.5  |   |                | 6.2   |   |                    |   | 19.9  |       |  | 9.6   |   |  |   | (7.4  | ) |  | (37.4 | ) 
|Interest income                              |  |                      | 0.5   |   |                | 0.3   |   |                    |   | 0.5   |       |  | 0.3   |   |  |   |      |   |  |      |   
|Interest expense                             |  |                      | (0.3  | ) |                | (0.2  | ) |                    |   | (0.3  | )     |  | (0.2  | ) |  |   |      |   |  |      |   
|Income tax expense                           |  |                      | (4.6  | ) |                | (2.3  | ) |                    |   | (7.1  | )     |  | (3.4  | ) |  |   | 2.5   |   |  | 35.6  |   
|                                             |  |                      |       |   |                |       |   |                    |   |       |       |  |       |   |  |   |       |   |  |       |   
|Net earnings                                 |  | $                    | 8.1   |   |                | 4.0   | % |                    | $ | 13.0  |       |  | 6.3   | % |  | $ | (4.9  | ) |  | (38.1 | )%
|                                             |  |                      |       |   |                |       |   |                    |   |       |       |  |       |   |  |   |       |   |  |       |   
|Net earnings per diluted share               |  | $                    | 0.28  |   |                |       |   |                    | $ | 0.45  |       |  |       |   |  | $ | (0.17 | ) |  |       |   
|                                             |  |                      |       |   |                |       |   |                    |   |       |       |  |       |   |  |   |       |   |  |       |   



Sales. As
discussed under the heading Segment Results above, sales by our Scientific Instruments and Vacuum Technologies segments in the first quarter of fiscal year 2010 decreased by 3.0% and 5.0%, respectively, compared to the prior-year quarter. On
a consolidated basis, sales declined 3.4% in the first quarter of fiscal year 2010. This decrease was primarily due to the impact of continued global economic weakness on capital equipment spending and by customers uncertainty and employee and
other disruptions related to the announcement and pendency of the acquisition by Agilent. Reported sales were positively impacted by the weaker U.S. dollar, which weakened approximately 5% on a weighted-average basis compared to most major
currencies in which we sell products and services.



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##### Table of Contents

For geographic reporting purposes, we refer to 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 first quarters of fiscal years 2010 and 2009 were as follows:



|                      |  |                      |       |           |                |   |   |                    |           |  |       |   |  |   |      |   |  |      |   
|--------------------- |  | -------------------- | ----- | --------- | -------------- | - | - | ------------------ | --------- |  | ----- | - |  | - | ---- | - |  | ---- | --
|                      |  | Fiscal Quarter Ended |       |           |                |  
|                      |  | January 1,2010       |       |           | January 2,2009 |   |   | Increase(Decrease) |          
|                      |  | $                    |       | % ofSales |                |   | $ |                    | % ofSales |  |       | $ |  |   | %    |  
|(dollars in millions) |  |                      |       |           |                |   |   |                    |           |  |       |   |  |   |      |   |  |      |   
|Geographic Region     |  |                      |       |           |                |   |   |                    |           |  |       |   |  |   |      |   |  |      |   
|North America         |  | $                    | 62.4  |           | 31.0           | % |   | $                  | 65.2      |  | 31.3  | % |  | $ | (2.8 | ) |  | (4.3 | )%
|Europe                |  |                      | 80.1  |           | 39.8           |   |   |                    | 83.9      |  | 40.3  |   |  |   | (3.8 | ) |  | (4.5 | ) 
|Asia Pacific          |  |                      | 46.9  |           | 23.3           |   |   |                    | 47.1      |  | 22.6  |   |  |   | (0.2 | ) |  | (0.5 | ) 
|Latin America         |  |                      | 11.8  |           | 5.9            |   |   |                    | 12.0      |  | 5.8   |   |  |   | (0.2 | ) |  | (2.4 | ) 
|                      |  |                      |       |           |                |   |   |                    |           |  |       |   |  |   |      |   |  |      |   
|Total company         |  | $                    | 201.2 |           | 100.0          | % |   | $                  | 208.2     |  | 100.0 | % |  | $ | (7.0 | ) |  | (3.4 | )%
|                      |  |                      |       |           |                |   |   |                    |           |  |       |   |  |   |      |   |  |      |   



The decrease in sales
in all regions was primarily attributable to the negative impact of continued global economic weakness on capital equipment spending and the negative impact of customers uncertainty and employee and other disruptions related to the
announcement and pendency of the acquisition by Agilent. Reported sales outside North America were favorably impacted by the weakening of the U.S. dollar compared to the prior year quarter.



Gross Profit. Gross profit for the first quarter of
fiscal year 2010 reflects the impact of $1.6 million in amortization expense relating to acquisition-related intangible assets and $0.2 million in restructuring and other related costs. In comparison, gross profit for the first quarter of fiscal
year 2009 reflects the impact of $1.6 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, gross profit as a percentage of
sales decreased primarily due to product mix, lower average selling prices of certain analytical instruments products, and the impact of the weaker U.S. dollar (which was unfavorable to reported gross profit, but favorable to reported sales)
partially offset by cost reduction activities implemented in the second quarter of fiscal year 2009.



Selling, General and Administrative. Selling, general and administrative expenses for the first quarter of fiscal year 2010 included
$3.2 million of costs resulting from the pending acquisition by Agilent, $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 first quarter of fiscal year 2009 included $0.5 million in amortization expense relating to acquisition-related intangible assets and $0.6 million in restructuring and other related costs. Excluding the
impact of these items, the selling, general and administrative expenses as a percentage of sales declined due to cost reduction activities implemented in the second quarter of fiscal year 2009, partly offset by the unfavorable impact of the weaker
U.S. dollar.



Research and
Development. Research and development expenses for the first quarter of fiscal year 2010 reflect the impact of restructuring and other related costs of $0.4 million. In comparison, research and development expenses for the first quarter of
fiscal year 2009 reflect the impact of restructuring and other related costs of $0.2 million. Excluding the impact of these items, research and development expenses as a percentage of sales were essentially flat compared to the first quarter of
fiscal 2009.



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 January 1,
2010, we have incurred a total of $12.2 million in restructuring expense and a total of $10.6 million in other costs related directly to those plans (comprised primarily of employee



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retention and relocation costs and accelerated depreciation of assets disposed upon the closure of facilities). Of the $10.6 million in other restructuring-related costs, $0.7 million was
recorded in the first quarter of fiscal year 2010 which was primarily related to the fiscal year 2007 restructuring plan.



The following table sets forth changes in the Companys aggregate liability relating to all ongoing restructuring plans during the first
quarter of fiscal year 2010:



|                                               |  |                  |      |   |                    |   |     |       |  |   |      |  
|---------------------------------------------- |  | ---------------- | ---- | - | ------------------ | - | --- | ----- |  | - | ---- | -
|                                               |  | Employee-Related |      |   | Facilities-Related |   |     | Total | 
|(in thousands)                                 |  |                  |      |   |                    |   |     |       |  |   |      |  
|Balance at October 2, 2009                     |  | $                | 579  |   |                    | $ | 398 |       |  | $ | 977  |  
|Charges to expense, net                        |  |                  | 34   |   |                    |   |    |       |  |   | 34   |  
|Cash payments                                  |  |                  | (248 | ) |                    |   | (10 | )     |  |   | (258 | )
|Foreign currency impacts and other adjustments |  |                  | (2   | ) |                    |   | (2  | )     |  |   | (4   | )
|                                               |  |                  |      |   |                    |   |     |       |  |   |      |  
|Balance at January 1, 2010                     |  | $                | 363  |   |                    | $ | 386 |       |  | $ | 749  |  
|                                               |  |                  |      |   |                    |   |     |       |  |   |      |  



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 its cost structure, primarily
through headcount reduction)                                                     |  | $20 million - $24 million    



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, some of which are still ongoing, we currently
believe that the ultimate savings realized will not differ materially from these estimates.



Income Tax Expense. The effective income tax rate was 36.2% for the first quarter of fiscal year 2010, compared to 35.3% for the first quarter of fiscal year 2009. The higher effective tax rate in
the first quarter of fiscal year 2010 was primarily due to the expiration of the U.S. federal research and development tax credit.



Net Earnings. Net earnings for the first quarter of fiscal year 2010 reflect the after-tax impacts of $3.2 million of pre-tax
costs resulting from the pending acquisition by Agilent, $1.8 million in pre-tax acquisition-related intangible amortization and $0.7 million in pre-tax restructuring and other related costs. Net earnings for the first quarter of fiscal year 2009
reflect the after-tax impacts of $2.1 million in acquisition-related intangible amortization 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 first quarter
of fiscal year 2010 was primarily attributable to lower gross profits as a percentage of sales.



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Outlook



The diversity of our products, the applications we serve and our worldwide distribution position us well. However, we continue to operate in
difficult global economic conditions. The uncertainty of these conditions, as well as customers uncertainty and employee and other disruptions related to the announcement and pendency of our acquisition by Agilent and related divestitures
being undertaken in order to obtain regulatory approval of that acquisition, make it difficult for us to project our near-term results of operations. These conditions could further impact our business and have an adverse effect on our financial
position, results of operations or cash flows. In addition, we have incurred and will continue to incur legal and other expenses in connection with the pending acquisition by Agilent, which could have an adverse effect on our financial position,
results of operations or cash flows.



Liquidity and Capital
Resources



We generated $22.7 million of cash
from operating activities in the first quarter of fiscal year 2010, compared to $16.9 million generated in the first quarter of fiscal year 2009. The increase in operating cash flows was primarily due to increased advance payments from customers,
reduced inventory purchases, and increased net earnings after adjustments for noncash income and expenses partly offset by decreased cash collections (due to lower prior-quarter revenues).



We used $3.4 million of cash for investing activities in
the first quarter of fiscal year 2010, which compares to $2.5 million used for investing activities in the first quarter of fiscal year 2009. In the first quarter of fiscal year 2009, we received a $5.0 million non-refundable first
surrender payment under an agreement with VMS in which we agreed to surrender to them the sublease for our facility in Palo Alto, CA in exchange for $21.0 million. The remaining $16.0 million is due when we fully surrender the facility in
the third quarter of fiscal year 2010. Excluding the first surrender payment, cash used for investing activities decreased $4.1 million in the first quarter of fiscal year 2010 compared to the same period in the prior year primarily due to
reduced capital spending levels, as we have completed the majority of our spending related to the construction of our IRD facility in Walnut Creek, partially offset by $1.3 million of cash paid in connection with the acquisition of certain net
assets of Analogix, Inc. (the Analogix Business).



We generated $1.6 million of cash from financing activities in the first quarter of fiscal year 2010, which compares to $0.5 million generated by financing activities in the first quarter of fiscal year
2009. Cash generated from financing activities in the first quarter of fiscal year 2010 was higher due to higher stock option exercise volume.



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
January 1, 2010, a total of $13.8 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 January 1, 2010 and
October 2, 2009, 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 January 1, 2010.



As of January 1, 2010, we had several 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 or
operational targets.



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The following table summarizes contingent consideration arrangements as of January 1,
2010:



|                           |  |                                    |  |                    |  |                            
|-------------------------- |  | ---------------------------------- |  | ------------------ |  | ---------------------------
|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          |  | 2.8                                |  | 3 years            |  | December 2010              
|Other                      |  | 0.3                                |  | 2 years            |  | July 2010                  
|                           |  |                                    |  |                    |  |                            
|Total                      |  | $10.1                              |  |                    |  |                            
|                           |  |                                    |  |                    |  |                            



We also have an
outstanding contingent consideration arrangement related to the purchase of certain assets. Remaining maximum contingent amounts under this arrangement were $2.6 million as of January 1, 2010.



During the first quarter of fiscal year 2010, we made a cash
payment of $1.3 million which was accrued as part of the purchase price to secure the sellers indemnification obligations in connection with the acquisition of the Analogix Business in fiscal year 2007.



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).



We had no material cancelable or non-cancelable commitments for capital expenditures as of January 1, 2010. In the aggregate, we
currently anticipate that our capital expenditures will be less than 2.0% of sales for fiscal year 2010.



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. During the first quarter of fiscal year 2010, we did not purchase any shares under this authorization. This repurchase program expired on December 31, 2009.



Our liquidity is affected by many other factors, including
on-going operations of our business, the pending acquisition by Agilent and external economic conditions. Our liquidity has not been materially affected by the pending acquisition, the deterioration in the global financial markets or global economic
conditions in general. However, current financial and economic conditions could adversely impact 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 and whether such financing would be available.



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 as well as financial, business and other
factors, including the affects of the pendency of the acquisition by Agilent.



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Contractual Obligations and Other Commercial Commitments



The following table summarizes the amount and estimated timing
of future cash expenditures relating to principal 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 January 1, 2010:



|                                           |  |                             |        |              |   |        |  |      |        |      |   |            |  |   |        |  |   |       |  |   |        |  |   |       
|------------------------------------------ |  | --------------------------- | ------ | ------------ | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | - | ------ |  | - | ----- |  | - | ------ |  | - | ------
|                                           |  | NineMonthsEndingOct. 1,2010 |        | Fiscal Years |   | Total 
|                                           |  | 2011                        |        | 2012         |   | 2013   |  | 2014 |        | 2015 |   | Thereafter | 
|(in thousands)                             |  |                             |        |              |   |        |  |      |        |      |   |            |  |   |        |  |   |       |  |   |        |  |   |       
|Operating leases                           |  | $                           | 5,061  |              | $ | 5,741  |  | $    | 3,347  |      | $ | 2,312      |  | $ | 1,730  |  | $ | 1,460 |  | $ | 595    |  | $ | 20,246
|Long-term debt (including current portion) |  |                             | 6,250  |              |   |       |  |      | 6,250  |      |   |           |  |   | 6,250  |  |   |      |  |   |       |  |   | 18,750
|Interest on long-term debt                 |  |                             | 838    |              |   | 838    |  |      | 733    |      |   | 419        |  |   | 314    |  |   |      |  |   |       |  |   | 3,142 
|Other long-term liabilities                |  |                             |       |              |   | 5,592  |  |      | 3,550  |      |   | 2,929      |  |   | 2,805  |  |   | 2,593 |  |   | 25,511 |  |   | 42,980
|                                           |  |                             |        |              |   |        |  |      |        |      |   |            |  |   |        |  |   |       |  |   |        |  |   |       
|Total                                      |  | $                           | 12,149 |              | $ | 12,171 |  | $    | 13,880 |      | $ | 5,660      |  | $ | 11,099 |  | $ | 4,053 |  | $ | 26,106 |  | $ | 85,118
|                                           |  |                             |        |              |   |        |  |      |        |      |   |            |  |   |        |  |   |       |  |   |        |  |   |       



As of January 1, 2010, 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 $10.1 million related to acquisitions and $2.6 million related to the purchase of certain assets as discussed under Liquidity and Capital Resources above, the specific amounts of which are not currently
determinable.



Recent Accounting Standards



In December 2008, the FASB issued additional disclosure
requirements for plan assets of a defined benefit pension or other postretirement plan. The required disclosures include a description of the Companys investment policies and strategies, the fair value of each major category of plan assets,
the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets and the significant concentrations of risk within plan assets.
These additional disclosures are effective for annual disclosure for fiscal years ending after December 15, 2009. We do not expect the adoption of the new disclosure requirements in fiscal year 2010 to have a material impact on our financial
condition or results of operations.



In October
2009, the FASB issued two new accounting standards that provide guidance for revenue recognition. The first standard revises guidance for arrangements with multiple deliverables. This accounting standard replaces the term fair value in the revenue
recognition allocation guidance with selling price and establishes a hierarchy for determining the selling price of a deliverable. The selling price of each deliverable will first be based on vendor specific objective evidence (VSOE) if
available, second on third-party evidence (TPE) if VSOE is not available and third on estimated selling price if neither VSOE nor TPE is available. In addition, the residual method is no longer permitted as vendors are now required to
allocate arrangement consideration using the relative selling price method. The second new accounting standard excludes from the scope of software revenue recognition, software components contained in, and essential to the functionality of, tangible
products. These two new accounting standards require expanded qualitative and quantitative disclosures and are effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. We do not expect the adoption of these accounting standards in the first quarter of fiscal year 2011 to have a material impact on our financial condition or results of operations.



In January 2010, the FASB issued an accounting standard update
that clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers



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disclosures about postretirement benefit plan assets. These additional disclosures are effective for interim and annual reporting periods beginning after December 15, 2009. We do not expect
our adoption of this accounting standard update in the second quarter of fiscal year 2010 to have a material impact on our financial condition or results of operations.



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



Foreign Currency Exchange Risk. We enter into foreign exchange forward contracts to minimize the
short-term impact of foreign currency fluctuations on assets and liabilities denominated in non-functional currencies. From time to time, we also enter into foreign exchange forward contracts to minimize the impact of foreign currency fluctuations
on forecasted transactions. The success of our hedging activities depends on our ability to forecast balance sheet exposures and transaction activity in various foreign currencies. To the extent that these forecasts are overstated or understated
during periods of currency volatility, we could experience unanticipated currency gains or losses. However, we believe that in most cases any such gains or losses would be substantially offset by losses or gains from the related foreign exchange
forward contracts. Therefore, we 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 quarter
of fiscal year 2010, we were not party to any foreign exchange forward contracts designated as cash flow hedges of forecasted transactions.



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 January 1, 2010 follows:



|                  |  |                   |        |                        |   |       
|----------------- |  | ----------------- | ------ | ---------------------- | - | ------
|                  |  | NotionalValueSold |        | NotionalValuePurchased
|(in thousands)    |  |                   |        |                        |   |       
|Australian dollar |  | $                 |       |                        | $ | 34,219
|British pound     |  |                   |       |                        |   | 13,514
|Euro              |  |                   |       |                        |   | 10,573
|Japanese yen      |  |                   | 5,688  |                        |   |      
|Korean won        |  |                   | 2,558  |                        |   |      
|Taiwan dollar     |  |                   | 1,861  |                        |   |      
|Canadian dollar   |  |                   | 1,507  |                        |   |      
|Singapore dollar  |  |                   | 1,173  |                        |   |      
|                  |  |                   |        |                        |   |       
|Total             |  | $                 | 12,787 |                        | $ | 58,306
|                  |  |                   |        |                        |   |       



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 January 1, 2010, our debt obligations had fixed interest rates.



Based upon rates currently available to us for debt with similar terms and remaining maturities, the carrying amounts of long-term debt approximate their estimated fair values. Although payments under
certain of our operating leases for our facilities are tied to market indices, we are not exposed to material interest rate risk associated with our operating leases.



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Debt Obligations.



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



|                                           |  |                             |       |   |              |      |   |       |      |   |       |      |  |   |      |   |  |            |       |   |  |   |   |   |  |   |   |   |  |   |        |  
|------------------------------------------ |  | --------------------------- | ----- | - | ------------ | ---- | - | ----- | ---- | - | ----- | ---- |  | - | ---- | - |  | ---------- | ----- | - |  | - | - | - |  | - | - | - |  | - | ------ | -
|                                           |  | NineMonthsEndingOct. 1,2010 |       |   | Fiscal Years |      |   | Total |     
|                                           |  |                             | 2011  |   |              | 2012 |   |       | 2013 |   |       | 2014 |  |   | 2015 |   |  | 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 FASB Accounting Standard Codification (ASC) 715-30, Defined Benefit Plans-Pension, 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 our investment and funding decisions.



For our defined benefit pension plans, we make assumptions regarding several variables including the expected long-term rate of return on plan assets and the discount rate in order to determine defined
benefit pension plan expense for the year. This expense is referred to as net periodic pension cost. We assess the expected long-term rate of return on plan assets and discount rate assumption for each defined benefit plan based on
relevant market conditions 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 2, 2009,
the estimated long-term rate of return on our defined benefit pension plan assets ranged from 0.3% to 6.5% (weighted-average of 5.1%), and the assumed discount rate for our defined benefit pension plan obligations ranged from 1.8% to 5.6%
(weighted-average of 5.4%).



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 $1.4 million in fiscal year 2009, $1.5 million in fiscal year 2008 and $2.3 million
in fiscal year 2007, and expect our net periodic pension cost to be approximately $1.2 million in fiscal year 2010. 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 2010 by $0.4 million or $0.5 million, respectively. As of October 2, 2009, our projected benefit obligation relating to defined benefit pension plans was $50.6 million. A 100 basis point decrease in the
weighted-average estimated discount rate would increase this obligation by $10.3 million.



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



Disclosure Controls and Procedures. Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our Chief Executive Officer and the Chief Financial Officer have concluded that as of
the end of the period covered by this Quarterly Report on Form 10-Q (for the period ended January 1, 2010), our disclosure controls and procedures were effective.



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Inherent Limitations on the Effectiveness of Controls. The Companys management,
including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and
operated, can only provide reasonable, not absolute, assurance that the control systems objectives will be met. Further, the design of a control system must reflect the fact that 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 first quarter of our fiscal year 2010
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 1. | Legal Proceedings
|------- | -----------------



SeePart I, Item 3Legal Proceedings in Amendment No. 1 on Form 10-K/A for the fiscal year ended October 2, 2009,
which Amendment was filed with the SEC on January 29, 2010.



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



SeeItem 1ARisk Factors presented in our Annual Report on Form 10-K for the fiscal year ended October 2, 2009, which
we encourage you to carefully consider.



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



(c) During the fiscal quarter ended January 1, 2010, 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.



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



(a) Exhibits.



|           |  |                                                                                                                                                                                                                    |  |                           |  |      |  |               |  |              
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- |  | ---- |  | ------------- |  | -------------
|           |  |                                                                                                                                                                                                                    |  | Incorporated by Reference |  |     
|ExhibitNo. |  | Exhibit Description                                                                                                                                                                                                |  | Form                      |  | Date |  | ExhibitNumber |  | FiledHerewith
|           |  |                                                                                                                                                                                                                    |  |                           | 
|31.1       |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.                                                                                            |  |                           |  |      |  |               |  | X            
|           |  |                                                                                                                                                                                                                    |  |                           | 
|31.2       |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.                                                                                            |  |                           |  |      |  |               |  | X            
|           |  |                                                                                                                                                                                                                    |  |                           | 
|32.1       |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18
U.S.C. 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002). |  |                           |  |      |  |               |  |              
|           |  |                                                                                                                                                                                                                    |  |                           | 
|32.2       |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18
U.S.C. 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002). |  |                           |  |      |  |               |  |              



31



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##### Table of Contents

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: February 5, 2010 |  |  |  | By:                       |  | /S/ G. EDWARD MCCLAMMY                                                                                                        
|                       |  |  |  |                           |  | G. Edward McClammy Senior Vice President and Chief Financial Officer (Duly Authorized
Officer and Principal Financial Officer)



32