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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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(Mark One)



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



For the quarterly period ended December 28, 2007



OR



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



For the transition period from  to



Commission File Number 000-25393



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VARIAN, INC.

(Exact Name of Registrant as Specified in its Charter)



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



(650) 213-8000

(Telephone Number)



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



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



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



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



The number of shares of the registrants common stock outstanding as of
February 1, 2008 was 30,289,787.



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##### Table of Contents

VARIAN, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 28, 2007



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                                                               |  | 30  
|         |  |                                                                                      
|PART II  |  | Other Information                                                                     |  |     
|         |  |                                                                                      
|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 |        
|                                       |  | December 28,2007     |         |   | December 29,2006 |  
|Sales                                  |  |                      |         |   |                  |   |         |  
|Products                               |  | $                    | 204,175 |   |                  | $ | 189,143 |  
|Services                               |  |                      | 33,256  |   |                  |   | 28,795  |  
|                                       |  |                      |         |   |                  |   |         |  
|Total sales                            |  |                      | 237,431 |   |                  |   | 217,938 |  
|                                       |  |                      |         |   |                  |   |         |  
|                                       |  |                     
|Cost of sales                          |  |                      |         |   |                  |   |         |  
|Products                               |  |                      | 111,157 |   |                  |   | 102,020 |  
|Services                               |  |                      | 18,972  |   |                  |   | 16,219  |  
|                                       |  |                      |         |   |                  |   |         |  
|Total cost of sales                    |  |                      | 130,129 |   |                  |   | 118,239 |  
|                                       |  |                      |         |   |                  |   |         |  
|Gross profit                           |  |                      | 107,302 |   |                  |   | 99,699  |  
|                                       |  |                     
|Operating expenses                     |  |                      |         |   |                  |   |         |  
|Selling, general and administrative    |  |                      | 65,980  |   |                  |   | 61,201  |  
|Research and development               |  |                      | 17,180  |   |                  |   | 15,610  |  
|                                       |  |                      |         |   |                  |   |         |  
|Total operating expenses               |  |                      | 83,160  |   |                  |   | 76,811  |  
|                                       |  |                      |         |   |                  |   |         |  
|Operating earnings                     |  |                      | 24,142  |   |                  |   | 22,888  |  
|                                       |  |                     
|Interest income (expense)              |  |                      |         |   |                  |   |         |  
|Interest income                        |  |                      | 1,937   |   |                  |   | 1,269   |  
|Interest expense                       |  |                      | (449    | ) |                  |   | (534    | )
|                                       |  |                      |         |   |                  |   |         |  
|Total interest income, net             |  |                      | 1,488   |   |                  |   | 735     |  
|                                       |  |                      |         |   |                  |   |         |  
|Earnings before income taxes           |  |                      | 25,630  |   |                  |   | 23,623  |  
|Income tax expense                     |  |                      | 8,046   |   |                  |   | 8,268   |  
|                                       |  |                      |         |   |                  |   |         |  
|Net earnings                           |  | $                    | 17,584  |   |                  | $ | 15,355  |  
|                                       |  |                      |         |   |                  |   |         |  
|                                       |  |                     
|Net earnings per share:                |  |                      |         |   |                  |   |         |  
|Basic                                  |  | $                    | 0.58    |   |                  | $ | 0.50    |  
|                                       |  |                      |         |   |                  |   |         |  
|Diluted                                |  | $                    | 0.57    |   |                  | $ | 0.49    |  
|                                       |  |                      |         |   |                  |   |         |  
|                                       |  |                     
|Shares used in per share calculations: |  |                      |         |   |                  |   |         |  
|Basic                                  |  |                      | 30,330  |   |                  |   | 30,601  |  
|                                       |  |                      |         |   |                  |   |         |  
|Diluted                                |  |                      | 30,900  |   |                  |   | 31,058  |  
|                                       |  |                      |         |   |                  |   |         |  



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)



|                                                                                                                                                           |  |                  |         |                   |   |        
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ----------------- | - | -------
|                                                                                                                                                           |  | December 28,2007 |         | September 28,2007
|ASSETS                                                                                                                                                     |  |                  |         |                   |   |        
|Current assets                                                                                                                                             |  |                  |         |                   |   |        
|Cash and cash equivalents                                                                                                                                  |  | $                | 197,680 |                   | $ | 196,396
|Accounts receivable, net                                                                                                                                   |  |                  | 175,431 |                   |   | 187,429
|Inventories                                                                                                                                                |  |                  | 157,843 |                   |   | 140,533
|Deferred taxes                                                                                                                                             |  |                  | 38,288  |                   |   | 38,068 
|Prepaid expense and other current assets                                                                                                                   |  |                  | 17,114  |                   |   | 17,332 
|                                                                                                                                                           |  |                  |         |                   |   |        
|Total current assets                                                                                                                                       |  |                  | 586,356 |                   |   | 579,758
|Property, plant and equipment, net                                                                                                                         |  |                  | 108,715 |                   |   | 110,792
|Goodwill                                                                                                                                                   |  |                  | 203,579 |                   |   | 193,760
|Intangible assets, net                                                                                                                                     |  |                  | 33,623  |                   |   | 31,572 
|Other assets                                                                                                                                               |  |                  | 20,398  |                   |   | 20,951 
|                                                                                                                                                           |  |                  |         |                   |   |        
|Total assets                                                                                                                                               |  | $                | 952,671 |                   | $ | 936,833
|                                                                                                                                                           |  |                  |         |                   |   |        
|                                                                                                                                                           |  |                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                       |  |                  |         |                   |   |        
|                                                                                                                                                           |  |                 
|Current liabilities                                                                                                                                        |  |                  |         |                   |   |        
|Current portion of long-term debt                                                                                                                          |  | $                | 6,250   |                   | $ | 6,250  
|Accounts payable                                                                                                                                           |  |                  | 71,712  |                   |   | 72,588 
|Deferred profit                                                                                                                                            |  |                  | 11,384  |                   |   | 13,641 
|Accrued liabilities                                                                                                                                        |  |                  | 161,574 |                   |   | 159,109
|                                                                                                                                                           |  |                  |         |                   |   |        
|Total current liabilities                                                                                                                                  |  |                  | 250,920 |                   |   | 251,588
|Long-term debt                                                                                                                                             |  |                  | 18,750  |                   |   | 18,750 
|Deferred taxes                                                                                                                                             |  |                  | 4,028   |                   |   | 4,050  
|Other liabilities                                                                                                                                          |  |                  | 40,935  |                   |   | 44,358 
|                                                                                                                                                           |  |                  |         |                   |   |        
|Total liabilities                                                                                                                                          |  |                  | 314,633 |                   |   | 318,746
|                                                                                                                                                           |  |                  |         |                   |   |        
|                                                                                                                                                           |  |                 
|Commitments and contingencies (Notes 5, 6, 8, 9, 10, 11, 12 and 14)                                                                                        |  |                  |         |                   |   |        
|                                                                                                                                                           |  |                 
|Stockholders equity                                                                                                                                       |  |                  |         |                   |   |        
|Preferred stockpar value $0.01, authorized1,000 shares; issuednone                                                                                      |  |                  |        |                   |   |       
|Common stockpar value $0.01, authorized99,000 shares; issued and outstanding 30,430 shares at December 28, 2007 and
30,345 shares at September 28, 2007 |  |                  | 362,328 |                   |   | 351,330
|Retained earnings                                                                                                                                          |  |                  | 207,598 |                   |   | 199,471
|Accumulated other comprehensive income                                                                                                                     |  |                  | 68,112  |                   |   | 67,286 
|                                                                                                                                                           |  |                  |         |                   |   |        
|Total stockholders equity                                                                                                                                 |  |                  | 638,038 |                   |   | 618,087
|                                                                                                                                                           |  |                  |         |                   |   |        
|Total liabilities and stockholders equity                                                                                                                 |  | $                | 952,671 |                   | $ | 936,833
|                                                                                                                                                           |  |                  |         |                   |   |        



See accompanying Notes
to the Unaudited Condensed Consolidated Financial Statements.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)



|                                                                                    |  |                      |         |   |                  |   |         |  
|----------------------------------------------------------------------------------- |  | -------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                    |  | Fiscal Quarter Ended |        
|                                                                                    |  | December 28,2007     |         |   | December 29,2006 |  
|Cash flows from operating activities                                                |  |                      |         |   |                  |   |         |  
|Net earnings                                                                        |  | $                    | 17,584  |   |                  | $ | 15,355  |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                      |         |   |                  |   |         |  
|Depreciation and amortization                                                       |  |                      | 6,834   |   |                  |   | 6,793   |  
|Gain on disposition of property, plant and equipment                                |  |                      | (222    | ) |                  |   | (34     | )
|Share-based compensation expense                                                    |  |                      | 1,719   |   |                  |   | 2,845   |  
|Deferred taxes                                                                      |  |                      | 765     |   |                  |   | (797    | )
|Changes in assets and liabilities, excluding effects of acquisitions:               |  |                      |         |   |                  |   |         |  
|Accounts receivable, net                                                            |  |                      | 13,773  |   |                  |   | 10,068  |  
|Inventories                                                                         |  |                      | (15,152 | ) |                  |   | (5,663  | )
|Prepaid expenses and other current assets                                           |  |                      | 272     |   |                  |   | (1,084  | )
|Other assets                                                                        |  |                      | (24     | ) |                  |   | 286     |  
|Accounts payable                                                                    |  |                      | (1,372  | ) |                  |   | (337    | )
|Deferred profit                                                                     |  |                      | (2,254  | ) |                  |   | (125    | )
|Accrued liabilities                                                                 |  |                      | (3,319  | ) |                  |   | (4,467  | )
|Other liabilities                                                                   |  |                      | (1,501  | ) |                  |   | (448    | )
|                                                                                    |  |                      |         |   |                  |   |         |  
|Net cash provided by operating activities                                           |  |                      | 17,103  |   |                  |   | 22,392  |  
|                                                                                    |  |                      |         |   |                  |   |         |  
|                                                                                    |  |                     
|Cash flows from investing activities                                                |  |                      |         |   |                  |   |         |  
|Proceeds from sale of property, plant and equipment                                 |  |                      | 341     |   |                  |   | 119     |  
|Purchase of property, plant and equipment                                           |  |                      | (3,459  | ) |                  |   | (2,054  | )
|Purchase of businesses, net of cash acquired                                        |  |                      | (9,987  | ) |                  |   | (3,000  | )
|                                                                                    |  |                      |         |   |                  |   |         |  
|Net cash used in investing activities                                               |  |                      | (13,105 | ) |                  |   | (4,935  | )
|                                                                                    |  |                      |         |   |                  |   |         |  
|Cash flows from financing activities                                                |  |                      |         |   |                  |   |         |  
|Repayment of debt                                                                   |  |                      |        |   |                  |   | (1,250  | )
|Repurchase of common stock                                                          |  |                      | (15,102 | ) |                  |   | (37,055 | )
|Issuance of common stock                                                            |  |                      | 9,518   |   |                  |   | 2,353   |  
|Excess tax benefit from share-based plans                                           |  |                      | 2,390   |   |                  |   | 1,173   |  
|Transfers to Varian Medical Systems, Inc.                                           |  |                      | (212    | ) |                  |   | (207    | )
|                                                                                    |  |                      |         |   |                  |   |         |  
|Net cash used in financing activities                                               |  |                      | (3,406  | ) |                  |   | (34,986 | )
|                                                                                    |  |                      |         |   |                  |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                        |  |                      | 692     |   |                  |   | 4,677   |  
|                                                                                    |  |                      |         |   |                  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                |  |                      | 1,284   |   |                  |   | (12,852 | )
|Cash and cash equivalents at beginning of period                                    |  |                      | 196,396 |   |                  |   | 154,155 |  
|                                                                                    |  |                      |         |   |                  |   |         |  
|Cash and cash equivalents at end of period                                          |  | $                    | 197,680 |   |                  | $ | 141,303 |  
|                                                                                    |  |                      |         |   |                  |   |         |  



See accompanying Notes
to the Unaudited Condensed Consolidated Financial Statements.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



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



These unaudited interim condensed consolidated financial statements of Varian, Inc. and its subsidiary companies (collectively, the Company)
have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. The September 28, 2007 balance sheet data was derived from audited financial
statements, but does not include all disclosures required in audited financial statements by U.S. GAAP. These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the notes
thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended September 28, 2007 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 December 28, 2007 are not necessarily indicative of the
results to be expected for a full year or for any other periods.



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



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



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



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



|Note 3. | Summary of Significant Accounting Policies
|------- | ------------------------------------------



Fiscal Periods. The Companys fiscal years reported are the 52- or 53-week periods ending on the Friday nearest September 30. Fiscal year
2008 will comprise the 53-week period ending October 3, 2008, and fiscal year 2007 was comprised of the 52-week period ended September 28, 2007. The fiscal quarters ended December 28, 2007 and December 29, 2006 each comprised 13
weeks.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



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



|                                 |  |                      |        |                  |   |       
|-------------------------------- |  | -------------------- | ------ | ---------------- | - | ------
|                                 |  | Fiscal Quarter Ended
|                                 |  | December 28,2007     |        | December 29,2006
|(in thousands)                   |  |                      |        |                  |   |       
|Net earnings                     |  | $                    | 17,584 |                  | $ | 15,355
|Other comprehensive income:      |  |                      |        |                  |   |       
|Currency translation adjustment  |  |                      | 824    |                  |   | 14,766
|                                 |  |                      |        |                  |   |       
|Total other comprehensive income |  |                      | 824    |                  |   | 14,766
|                                 |  |                      |        |                  |   |       
|Total comprehensive income       |  | $                    | 18,408 |                  | $ | 30,121
|                                 |  |                      |        |                  |   |       



|Note 4. | Balance Sheet Detail
|------- | --------------------



|                        |  |                    |         |                   |   |        
|----------------------- |  | ------------------ | ------- | ----------------- | - | -------
|                        |  | Fiscal Quarter End
|                        |  | December 28,2007   |         | September 28,2007
|(in thousands)          |  |                    |         |                   |   |        
|Inventories             |  |                    |         |                   |   |        
|Raw materials and parts |  | $                  | 76,938  |                   | $ | 64,130 
|Work in process         |  |                    | 23,489  |                   |   | 24,842 
|Finished goods          |  |                    | 57,416  |                   |   | 51,561 
|                        |  |                    |         |                   |   |        
|Total                   |  | $                  | 157,843 |                   | $ | 140,533
|                        |  |                    |         |                   |   |        



|Note 5. | Forward Exchange Contracts
|------- | --------------------------



The Company enters into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations on assets and liabilities
denominated in non-functional currencies. These contracts are accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activities. Typically, gains and losses on these contracts are substantially offset by transaction
losses and gains on the underlying balances being hedged. During the fiscal quarter ended December 28, 2007, net foreign currency gains relating to these arrangements were $0.3 million. During the fiscal quarter ended December 29, 2006,
net foreign currency losses relating to these arrangements were $0.3 million. These amounts were recorded in selling, general and administrative expenses.



From time to time, the Company also enters into foreign exchange forward contracts to minimize the impact of foreign currency fluctuations on forecasted
transactions. These contracts are designated as cash flow hedges under SFAS 133. At December 28, 2007, there were no outstanding foreign exchange forward contracts designated as cash flow hedges of forecasted transactions. During the fiscal
quarters ended December 28, 2007 and December 29, 2006, no foreign exchange gains or losses from hedge ineffectiveness were recognized.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



The Companys foreign exchange forward contracts generally range from one to 12 months in
original maturity. A summary of all foreign exchange forward contracts that were outstanding as of December 28, 2007 follows:



|                  |  |                   |       |                        |   |       
|----------------- |  | ----------------- | ----- | ---------------------- | - | ------
|                  |  | NotionalValueSold |       | NotionalValuePurchased
|(in thousands)    |  |                   |       |                        |   |       
|Australian dollar |  | $                 |      |                        | $ | 36,849
|Euro              |  |                   |      |                        |   | 26,532
|British pound     |  |                   |      |                        |   | 9,363 
|Canadian dollar   |  |                   | 2,912 |                        |   |      
|Japanese yen      |  |                   | 2,309 |                        |   |      
|                  |  |                   |       |                        |   |       
|Total             |  | $                 | 5,221 |                        | $ | 72,744
|                  |  |                   |       |                        |   |       



|Note 6. | Acquisitions
|------- | ------------



On November 11, 2007, the Company acquired certain assets and assumed certain liabilities of Analogix, Inc. (the Analogix Business) for
approximately $11 million in cash and assumed net debt, subject to certain net asset adjustments. Under the terms of the acquisition, the Company might make additional purchase price payments of up to $4 million over a three-year period, depending
on the performance of the Analogix Business and certain operational milestones. The Analogix Business designs, manufactures, markets, sells and services consumables and instrumentation for automated compound purification using flash chromatography,
and became part of the Scientific Instruments segment.



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
December 28, 2007, up to a maximum of $33.3 million could be payable through December 2010 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 key terms of outstanding contingent consideration arrangements as of December 28, 2007:



|                  |  |                                    |  |                    |  |                            
|----------------- |  | ---------------------------------- |  | ------------------ |  | ---------------------------
|Acquired business |  | RemainingAmount Available(maximum) |  | Measurement period |  | Measurement period end date
|Analogix          |  | $  4.0 million                     |  | 3 years            |  | December 2010              
|IonSpec           |  | $14.0 million                      |  | 3 years            |  | February 2009              
|Polymer Labs      |  | $15.3 million                      |  | 3 years            |  | December 2008              



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



|Note 7. | 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 2008 were as follow:



|                                               |  |                       |         |   |                    |   |              |  |   |         |  
|---------------------------------------------- |  | --------------------- | ------- | - | ------------------ | - | ------------ |  | - | ------- | -
|                                               |  | ScientificInstruments |         |   | VacuumTechnologies |   | TotalCompany | 
|(in thousands)                                 |  |                       |         |   |                    |   |              |  |   |         |  
|Balance as of September 28, 2007               |  | $                     | 192,794 |   |                    | $ | 966          |  | $ | 193,760 |  
|Fiscal year 2008 acquisitions                  |  |                       | 5,927   |   |                    |   |              |  |   | 5,927   |  
|Contingent payments on prior-year acquisitions |  |                       | 4,000   |   |                    |   |             |  |   | 4,000   |  
|Foreign currency impacts and other adjustments |  |                       | (108    | ) |                    |   |             |  |   | (108    | )
|                                               |  |                       |         |   |                    |   |              |  |   |         |  
|Balance as of December 28, 2007                |  | $                     | 202,613 |   |                    | $ | 966          |  | $ | 203,579 |  
|                                               |  |                       |         |   |                    |   |              |  |   |         |  



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



|                            |  |                   |        |                         |   |         |     |  |   |       
|--------------------------- |  | ----------------- | ------ | ----------------------- | - | ------- | --- |  | - | ------
|                            |  | December 28, 2007
|                            |  | Gross             |        | AccumulatedAmortization |   |         | Net
|(in thousands)              |  |                   |        |                         |   |         |     |  |   |       
|Intangible assets           |  |                   |        |                         |   |         |     |  |   |       
|Existing technology         |  | $                 | 16,483 |                         | $ | (8,647  | )   |  | $ | 7,836 
|Patents and core technology |  |                   | 33,524 |                         |   | (11,593 | )   |  |   | 21,931
|Trade names and trademarks  |  |                   | 2,455  |                         |   | (1,710  | )   |  |   | 745   
|Customer lists              |  |                   | 12,090 |                         |   | (9,659  | )   |  |   | 2,431 
|Other                       |  |                   | 3,043  |                         |   | (2,363  | )   |  |   | 680   
|                            |  |                   |        |                         |   |         |     |  |   |       
|Total                       |  | $                 | 67,595 |                         | $ | (33,972 | )   |  | $ | 33,623
|                            |  |                   |        |                         |   |         |     |  |   |       



|                            |  |                    |        |                         |   |         |     |  |   |       
|--------------------------- |  | ------------------ | ------ | ----------------------- | - | ------- | --- |  | - | ------
|                            |  | September 28, 2007
|                            |  | Gross              |        | AccumulatedAmortization |   |         | Net
|(in thousands)              |  |                    |        |                         |   |         |     |  |   |       
|Intangible assets           |  |                    |        |                         |   |         |     |  |   |       
|Existing technology         |  | $                  | 16,611 |                         | $ | (8,235  | )   |  | $ | 8,376 
|Patents and core technology |  |                    | 29,908 |                         |   | (10,752 | )   |  |   | 19,156
|Trade names and trademarks  |  |                    | 2,458  |                         |   | (1,623  | )   |  |   | 835   
|Customer lists              |  |                    | 11,866 |                         |   | (9,408  | )   |  |   | 2,458 
|Other                       |  |                    | 3,025  |                         |   | (2,278  | )   |  |   | 747   
|                            |  |                    |        |                         |   |         |     |  |   |       
|Total                       |  | $                  | 63,868 |                         | $ | (32,296 | )   |  | $ | 31,572
|                            |  |                    |        |                         |   |         |     |  |   |       



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



Amortization expense relating to intangible assets was $1.9 million and $2.3 million during the
fiscal quarters ended December 28, 2007 and December 29, 2006, respectively. At December 28, 2007, estimated amortization expense for the remainder of fiscal year 2008 and for each of the five succeeding fiscal years and thereafter
follows:



|                                   |  |                              |       
|---------------------------------- |  | ---------------------------- | ------
|                                   |  | EstimatedAmortizationExpense
|(in thousands)                     |  |                              |       
|Nine months ending October 3, 2008 |  | $                            | 5,798 
|Fiscal year 2009                   |  |                              | 6,665 
|Fiscal year 2010                   |  |                              | 6,160 
|Fiscal year 2011                   |  |                              | 3,711 
|Fiscal year 2012                   |  |                              | 2,885 
|Fiscal year 2013                   |  |                              | 2,574 
|Thereafter                         |  |                              | 5,830 
|                                   |  |                              |       
|Total                              |  | $                            | 33,623
|                                   |  |                              |       



|Note 8. | Restructuring Activities
|------- | ------------------------



Summary of Restructuring Plans.Between fiscal years 2003 and 2007, the Company committed to several restructuring plans in order to adjust its
organizational structure, improve operational efficiencies and eliminate redundant or excess costs resulting from acquisitions or dispositions during those periods.



The following table sets forth changes in the Companys aggregate liability relating to all restructuring plans
(including the Fiscal Year 2007 Plan described below) during the first quarter of fiscal year 2008 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 September 28, 2007                  |  | $                | 2,222 |      |                    | $ | 707   |       |  | $ | 2,929 |  
|Charges to expense, net                        |  |                  | 453   |      |                    |   | 761   |       |  |   | 1,214 |  
|Cash payments                                  |  |                  | (181  | )    |                    |   | (131  | )     |  |   | (312  | )
|Foreign currency impacts and other adjustments |  |                  | 24    |      |                    |   | (24   | )     |  |   |      |  
|                                               |  |                  |       |      |                    |   |       |       |  |   |       |  
|Balance at December 28, 2007                   |  | $                | 2,518 |      |                    | $ | 1,313 |       |  | $ | 3,831 |  
|                                               |  |                  |       |      |                    |   |       |       |  |   |       |  
|                                               |  |                  |      
|Total expense since inception of plans         |  |                  |       |      |                    |   |       |       |  |   |       |  
|(in millions)                                  |  |                  |       |      |                    |   |       |       |  |   |       |  
|Restructuring expense                          |  |                  | $     | 18.8 |                   
|                                               |  |                  |       |      |                    |   |       |       |  |   |       |  
|Other restructuring-related costs (1)          |  |                  | $     | 6.2  |                   
|                                               |  |                  |       |      |                    |   |       |       |  |   |       |  

---

|(1) | These costs related primarily to employee retention and relocation costs and accelerated depreciation of assets disposed upon the closure of facilities. Of the $6.2 million in other
restructuring-related costs, $0.8 million was recorded in the first quarter of fiscal year 2008.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



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



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



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



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



The following table sets forth changes in the Companys restructuring liability relating to the foregoing plan during the first quarter of fiscal
year 2008:



|                                               |  |                  |       |     |                    |   |     |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | ----- | --- | ------------------ | - | --- | ----- |  | - | ----- | -
|                                               |  | Employee-Related |       |     | Facilities-Related |   |     | Total | 
|(in thousands)                                 |  |                  |       |     |                    |   |     |       |  |   |       |  
|Balance at September 28, 2007                  |  | $                | 2,222 |     |                    | $ |    |       |  | $ | 2,222 |  
|Charges to expense, net                        |  |                  | 453   |     |                    |   | 761 |       |  |   | 1,214 |  
|Cash payments                                  |  |                  | (181  | )   |                    |   | (77 | )     |  |   | (258  | )
|Foreign currency impacts and other adjustments |  |                  | 24    |     |                    |   | (20 | )     |  |   | 4     |  
|                                               |  |                  |       |     |                    |   |     |       |  |   |       |  
|Balance at December 28, 2007                   |  | $                | 2,518 |     |                    | $ | 664 |       |  | $ | 3,182 |  
|                                               |  |                  |       |     |                    |   |     |       |  |   |       |  
|                                               |  |                  |      
|Total expense since inception of plan          |  |                  |       |     |                    |   |     |       |  |   |       |  
|(in millions)                                  |  |                  |       |     |                    |   |     |       |  |   |       |  
|Restructuring expense                          |  |                  | $     | 3.5 |                   
|                                               |  |                  |       |     |                    |   |     |       |  |   |       |  
|Other restructuring-related costs              |  |                  | $     | 2.8 |                   
|                                               |  |                  |       |     |                    |   |     |       |  |   |       |  



The restructuring
charges of $1.2 million recorded during the first quarter of fiscal year 2008 related to employee termination benefits and costs associated with the closure of leased facilities. The Company also incurred $0.8 million in other restructuring-related
costs which were comprised of $0.6 million in employee retention costs and $0.2 million in facilities-related costs including decommissioning costs and non-cash charges for accelerated depreciation of assets to be disposed upon the closure of
facilities.



|Note 9. | 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.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



Changes in the Companys estimated liability for product warranty during the fiscal quarters
ended December 28, 2007 and December 29, 2006 follow:



|                                            |  |                      |        |   |                  |   |        |  
|------------------------------------------- |  | -------------------- | ------ | - | ---------------- | - | ------ | -
|                                            |  | Fiscal Quarter Ended |       
|                                            |  | December 28,2007     |        |   | December 29,2006 |  
|(in thousands)                              |  |                      |        |   |                  |   |        |  
|Beginning balance                           |  | $                    | 12,454 |   |                  | $ | 11,042 |  
|Charges to costs and expenses               |  |                      | 1,167  |   |                  |   | 656    |  
|Warranty expenditures and other adjustments |  |                      | (1,095 | ) |                  |   | (381   | )
|                                            |  |                      |        |   |                  |   |        |  
|Ending balance                              |  | $                    | 12,526 |   |                  | $ | 11,317 |  
|                                            |  |                      |        |   |                  |   |        |  



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



The Company is subject to certain indemnification obligations to VMS
(formerly VAI) and VSEA in connection with the Instruments business as conducted by VAI prior to the Distribution (described in Note 2). These indemnification obligations cover a variety of aspects of the Companys business, including, but not
limited to, employee, tax, intellectual property, litigation and environmental matters. 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 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 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



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



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 10. | 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 consolidated financial
statements. As of December 28, 2007, a total of $21.5 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 December 28,
2007 and September 28, 2007, the Company had a $25.0 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 December 28, 2007.



The following table summarizes future principal payments on borrowings under
long-term debt outstanding as of December 28, 2007:



|                                           |  |                             |       |              |      |   |      |   |       |  |      |   |            |   |       |  |   |   |  |   |       |  |   |       
|------------------------------------------ |  | --------------------------- | ----- | ------------ | ---- | - | ---- | - | ----- |  | ---- | - | ---------- | - | ----- |  | - | - |  | - | ----- |  | - | ------
|                                           |  | NineMonthsEndingOct. 3,2008 |       | Fiscal Years |      |  
|                                           |  |                             | 2009  |              | 2010 |   | 2011 |   | 2012  |  | 2013 |   | Thereafter |   | Total
|(in thousands)                             |  |                             |       |              |      |   |      |   |       |  |      |   |            |   |       |  |   |   |  |   |       |  |   |       
|Long-term debt (including current portion) |  | $                           | 6,250 |              | $    |  |      | $ | 6,250 |  | $    |  |            | $ | 6,250 |  | $ |  |  | $ | 6,250 |  | $ | 25,000
|                                           |  |                             |       |              |      |   |      |   |       |  |      |   |            |   |       |  |   |   |  |   |       |  |   |       



|Note 11. | 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 |     
|                                                                  |  | December 28,2007     |      |   | December 29,2006 |  
|(in thousands)                                                    |  |                      |      |   |                  |   |      |  
|Service cost                                                      |  | $                    | 343  |   |                  | $ | 334  |  
|Interest cost                                                     |  |                      | 723  |   |                  |   | 626  |  
|Expected return on plan assets                                    |  |                      | (653 | ) |                  |   | (512 | )
|Amortization of prior service cost and actuarial gains and losses |  |                      |     |   |                  |   | 111  |  
|                                                                  |  |                      |      |   |                  |   |      |  
|Net periodic pension cost                                         |  | $                    | 413  |   |                  | $ | 559  |  
|                                                                  |  |                      |      |   |                  |   |      |  



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



Employer Contributions. During the fiscal quarter ended December 28, 2007, the Company
made contributions totaling $0.4 million to its defined benefit pension plans. The Company currently anticipates contributing an additional $1.0 million to these plans in the remaining nine months of fiscal year 2008.



|Note 12. | Contingencies
|-------- | -------------



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



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



For certain of these sites and
facilities, various uncertainties make it difficult to assess the likelihood and scope of further environmental-related activities or claims or to estimate the future costs of such activities or claims if undertaken or asserted. As of
December 28, 2007, it was nonetheless estimated that the Companys share of the future exposure for environmental-related costs for these sites and facilities ranged in the aggregate from $1.1 million to $2.6 million (without discounting
to present value). The time frame over which these costs are expected to be incurred varies with each site and facility, ranging up to approximately 5 years as of December 28, 2007. No amount in the foregoing range of estimated future costs is
believed to be more probable of being incurred than any other amount in such range and the Company therefore had an accrual of $1.2 million as of December 28, 2007.



As to certain sites and facilities, sufficient knowledge has been gained to be able to better estimate the scope and certain
costs of future environmental-related activities. As of December 28, 2007, it was estimated that the Companys share of the future exposure for these environmental-related costs for these sites and facilities ranged in the aggregate from
$3.0 million to $12.9 million (without discounting to present value). The time frame over which these costs are expected to be incurred varies with each site and facility, ranging up to approximately 22 years as of December 28, 2007. As to each
of these sites and facilities, it was determined that a particular amount within the range of certain estimated costs was a better estimate of the future environmental-related cost than any other amount within the range and that the amount and
timing of these future costs were reliably determinable. Together, these amounts totaled $5.9 million at December 28, 2007. The Company therefore had an accrual of $4.1 million as of December 28, 2007, which represents the best estimate of
its share of these future environmental-related costs discounted at 4%, net of inflation. This accrual is in addition to the $1.2 million described in the preceding paragraph.



An insurance company has agreed to pay a portion of certain of VAIs (now VMS) future environmental-related costs
for which the Company has an indemnification obligation and the Company therefore has a



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



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



long-term receivable of $1.0 million (discounted at 4%, net of inflation) in other assets as of December 28, 2007, for the Companys share of
such recovery. The Company has not reduced any environmental-related liability in anticipation of recoveries from third parties.



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



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



|Note 13. | Stockholders Equity and Stock Plans
|-------- | ------------------------------------



Share-Based Compensation Expense. The Company accounts for share-based awards in accordance with the provisions of SFAS 123(R), Share-Based
Payment, which was adopted during the fiscal quarter ended December 30, 2005 using the modified prospective application method.



The following table summarizes the amount of share-based compensation expense by award type as well as the effect of this expense on net earnings and net
earnings per share:



|                                                                                |  |                      |        |   |                  |   |        |  
|------------------------------------------------------------------------------- |  | -------------------- | ------ | - | ---------------- | - | ------ | -
|                                                                                |  | Fiscal Quarter Ended |       
|                                                                                |  | December 28,2007     |        |   | December 29,2006 |  
|(in thousands, except per share amounts)                                        |  |                      |        |   |                  |   |        |  
|Share-based compensation expense by award type:                                 |  |                      |        |   |                  |   |        |  
|Employee and non-employee director stock options                                |  | $                    | (968   | ) |                  | $ | (2,078 | )
|Employee stock purchase plan                                                    |  |                      | (310   | ) |                  |   | (195   | )
|Restricted (nonvested) stock (1)                                                |  |                      | (441   | ) |                  |   | (572   | )
|                                                                                |  |                      |        |   |                  |   |        |  
|Total share-based compensation expense (effect on earnings before income taxes) |  |                      | (1,719 | ) |                  |   | (2,845 | )
|Effect on income tax expense                                                    |  |                      | 564    |   |                  |   | 1,023  |  
|                                                                                |  |                      |        |   |                  |   |        |  
|Effect on net earnings                                                          |  | $                    | (1,155 | ) |                  | $ | (1,822 | )
|                                                                                |  |                      |        |   |                  |   |        |  
|Effect on net earnings per share:                                               |  |                      |        |   |                  |   |        |  
|Basic                                                                           |  | $                    | (0.04  | ) |                  | $ | (0.06  | )
|                                                                                |  |                      |        |   |                  |   |        |  
|Diluted                                                                         |  | $                    | (0.04  | ) |                  | $ | (0.06  | )
|                                                                                |  |                      |        |   |                  |   |        |  

---

|(1) | Includes $81,000 in the fiscal quarter ended December 28, 2007 related to shares granted in connection with the Companys fiscal 2007 restructuring plan.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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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 has been included in the Companys unaudited condensed
consolidated statement of earnings as follows:



|                                    |  |                      |       |                  |   |      
|----------------------------------- |  | -------------------- | ----- | ---------------- | - | -----
|                                    |  | Fiscal Quarter Ended
|                                    |  | December 28,2007     |       | December 29,2006
|(in thousands)                      |  |                      |       |                  |   |      
|Cost of sales                       |  | $                    | 124   |                  | $ | 108  
|Selling, general and administrative |  |                      | 1,461 |                  |   | 2,609
|Research and development            |  |                      | 134   |                  |   | 128  
|                                    |  |                      |       |                  |   |      
|Total                               |  | $                    | 1,719 |                  | $ | 2,845
|                                    |  |                      |       |                  |   |      



Employee Stock
Options.During the fiscal quarter ended December 28, 2007, the Company granted 256,000 stock options to employees having a weighted-average exercise price of $69.44 and an estimated grant date fair value (net of expected forfeitures) of
$5.3 million. During the fiscal quarter ended December 29, 2006, the Company granted 305,000 stock options to employees having a weighted-average exercise price of $45.06 and an estimated grant date fair value (net of expected forfeitures) of
$3.9 million.



As of December 28, 2007, the unrecorded
deferred share-based compensation balance related to stock options was $8.9 million. This amount will be recognized as expense using the straight-line attribution method over an estimated weighted-average amortization period of 1.5 years.



Restricted (Nonvested) Stock.During December 2007 and December
2006, the Company granted under the Omnibus Stock Plan (OSP) 42,250 and 47,200 shares, respectively, of restricted (nonvested) common stock to employees. The restricted stock granted during the fiscal quarters ended December 28,
2007 and December 29, 2006 had aggregate values of $2.9 million and $2.1 million, respectively, representing the fair market value of the restricted shares on their grant dates. These amounts are being recognized by the Company as share-based
compensation expense ratably over their respective three-year vesting periods. During the fiscal quarter ended December 28, 2007, the Company recognized $0.4 million in share-based compensation expense relating to restricted stock grants, which
included $0.1 million related to shares granted in connection with the Companys Fiscal Year 2007 restructuring plan. During the fiscal quarter ended December 29, 2006, the Company recognized $0.6 million in share-based compensation
expense relating to restricted stock grants.



As of
December 28, 2007, there was a total of $4.3 million in unrecognized compensation expense related to restricted stock granted under the OSP. This expense is expected to be recognized over a weighted-average amortization period of 1.9 years.



Employee Stock Purchase Plan.During the fiscal
quarters ended December 28, 2007 and December 29, 2006, employees purchased approximately 20,000 shares for $0.9 million and 25,000 shares for $0.9 million, respectively. As of December 28, 2007, a total of approximately 248,000
shares remained available for issuance under the ESPP.



Stock Repurchase Programs. In January 2007, the Companys Board of Directors approved a stock repurchase program under which the Company was authorized to utilize up to $100 million to repurchase shares of its common stock. This
repurchase program is effective through December 31, 2008. During the fiscal quarter ended December 28, 2007, the Company repurchased and retired 209,000 shares under this authorization at an aggregate cost of $14.3 million. As of
December 28, 2007, the Company had remaining authorization to repurchase $36.1 million of its common stock under this program.



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



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



Other Stock Repurchases.During the fiscal quarter ended December 28, 2007, the
Company retired 12,000 shares tendered to it by employees in settlement of employee tax withholding obligations due from those employees upon the vesting of restricted stock.



|Note 14. | Income Taxes
|-------- | ------------



Effective September 29, 2007 the Company adopted FIN 48, Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No
109, which addresses accounting for, and disclosure of, uncertain tax positions. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to
be taken in a tax return. As a result of the adoption of FIN 48, the Company reduced its liability for unrecognized tax benefits and increased deferred tax assets by $2.4 million and $0.6 million, respectively. These adjustments were aggregated and
accounted for as a cumulative effect of a change in accounting principle, which resulted in an increase to retained earnings of $3.0 million. The total amount of unrecognized tax benefits excluding interest thereon as of the date of adoption was
$6.9 million, substantially all of which would impact the effective tax rate if realized. The Companys policy to include interest and penalties related to income taxes within income tax expense did not change as a result of implementing FIN
48. As of the date of adoption of FIN 48, the Company had accrued $0.7 million in income taxes payable for the payment of interest and penalties related to unrecognized tax benefits.



The Companys U.S. federal, state and local income tax returns and non-U.S. income tax returns are subject to audit by
relevant tax authorities. The Companys income tax reporting periods beginning after fiscal year 2003 for the U.S. and after fiscal year 2001 for the Companys major non-U.S. jurisdictions remain generally open to audit by relevant tax
authorities. During the first quarter of fiscal year 2008, total unrecognized tax benefits were reduced by $1.3 million due to the lapse of certain statutes of limitations in the period and increased by $0.2 million due to current-year uncertain tax
positions. These amounts resulted in a corresponding benefit in income tax expense in the period. In addition, income tax expense for the first quarter of fiscal year 2008 also included a net benefit of $0.1 million for a reduction in accrued
interest and penalties.



At December 28, 2007, the total
amount of unrecognized tax benefits was $5.8 million, substantially all of which would impact the effective tax rate if realized. Income taxes payable at December 28, 2007 included accrued interest and penalties of $0.5 million.



Although the timing and outcome of income tax audits is highly uncertain, the
Company does not believe that its total unrecognized tax benefits will materially change in the next twelve months.



|Note 15. | 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 are increased by the number of additional shares of common stock that would have been outstanding if
dilutive potential shares of common stock had been issued. The dilutive effect of potential common stock (including outstanding stock options, unvested restricted stock, ESPP shares 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 as required by SFAS 123(R).



For the fiscal quarters ended December 28, 2007 and December 29, 2006, options to purchase 256,000 and 23,000 shares, respectively, were
excluded from the calculation of diluted earnings per share as their effect was anti-dilutive.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



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



|                                              |  |                      |  |                 
|--------------------------------------------- |  | -------------------- |  | ----------------
|                                              |  | Fiscal Quarter Ended
|                                              |  | December 28,2007     |  | December 29,2006
|(in thousands)                                |  |                      |  |                 
|Weighted-average basic shares outstanding     |  | 30,330               |  | 30,601          
|Net effect of dilutive potential common stock |  | 570                  |  | 457             
|                                              |  |                      |  |                 
|Weighted-average diluted shares outstanding   |  | 30,900               |  | 31,058          
|                                              |  |                      |  |                 



|Note 16. | 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 and industrial (which includes
environmental, food and energy) applications requiring identification, quantification and analysis of the composition or structure of liquids, solids or gases. The Vacuum Technologies segment designs, develops, manufactures, markets, sells and
services vacuum products and related accessories and services used to create, contain, control, measure and test vacuum environments in a broad range of life science and industrial applications requiring ultra-clean or high-vacuum environments.
These segments were determined in accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information.



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



|                        |  |                      |       |                      |   |                  |  |   |                  |   |  |   |      |  
|----------------------- |  | -------------------- | ----- | -------------------- | - | ---------------- |  | - | ---------------- | - |  | - | ---- | -
|                        |  | Sales                |       | Pretax Earnings      |  
|                        |  | Fiscal Quarter Ended |       | Fiscal Quarter Ended |  
|                        |  | December 28,2007     |       | December 29,2006     |   | December 28,2007 |  |   | December 29,2006 |  
|(in millions)           |  |                      |       |                      |   |                  |  |   |                  |   |  |   |      |  
|Scientific Instruments  |  | $                    | 197.0 |                      | $ | 176.9            |  | $ | 19.8             |   |  | $ | 18.9 |  
|Vacuum Technologies     |  |                      | 40.4  |                      |   | 41.0             |  |   | 7.7              |   |  |   | 8.4  |  
|                        |  |                      |       |                      |   |                  |  |   |                  |   |  |   |      |  
|Total industry segments |  |                      | 237.4 |                      |   | 217.9            |  |   | 27.5             |   |  |   | 27.3 |  
|General corporate       |  |                      |      |                      |   |                 |  |   | (3.4             | ) |  |   | (4.4 | )
|Interest income         |  |                      |      |                      |   |                 |  |   | 1.9              |   |  |   | 1.2  |  
|Interest expense        |  |                      |      |                      |   |                 |  |   | (0.4             | ) |  |   | (0.5 | )
|                        |  |                      |       |                      |   |                  |  |   |                  |   |  |   |      |  
|Total                   |  | $                    | 237.4 |                      | $ | 217.9            |  | $ | 25.6             |   |  | $ | 23.6 |  
|                        |  |                      |       |                      |   |                  |  |   |                  |   |  |   |      |  



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



|Note 17. | Recent Accounting Pronouncements
|-------- | --------------------------------



In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies to previous accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007. The Company does not expect the adoption of SFAS 157 to have a material impact on its financial condition or results of operations.



In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an
amendment of FASB Statement 115, which provides companies with an option to measure eligible financial assets and liabilities in their entirety at fair value. The fair value option may be applied instrument by instrument, and may be applied only
to entire instruments. If a company elects the fair value option for an eligible item, changes in the items fair value must be reported as unrealized gains and losses in earnings at each subsequent reporting date. SFAS 159 is effective
for fiscal years beginning after November 15, 2007. The Company is evaluating the options provided under SFAS 159 and their potential impact on its financial condition and results of operations if implemented.



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



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



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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 costs and related
cost savings, as well as our expected effective annual tax rate and anticipated capital expenditures in fiscal year 2008.



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 September 28, 2007. We encourage you to read
that section carefully.



Other risks and uncertainties that
could cause actual results to differ materially from those in our forward-looking statements include, but are not limited to, the following: whether we will succeed in new product development, release, commercialization, performance and acceptance;
whether we can achieve continued growth in sales for industrial applications and/or stronger growth in sales for life science applications; whether we can achieve continued sales growth in Europe and Asia Pacific and/or growth in sales in the U.S.;
risks arising from the timing of shipments, installations and the recognition of revenues on certain magnet-based 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 product and geographic
markets; whether we will see continued and timely delivery of key raw materials and components by suppliers; foreign currency fluctuations that could adversely impact revenue growth and earnings; whether we will see continued investment in capital
equipment; whether we will see reduced demand from customers that operate in cyclical industries; the impact of any delay or reduction in government funding for research; our ability to successfully evaluate, negotiate and integrate acquisitions;
the actual costs, timing and benefits of restructuring activities (such as our Northern California facilities consolidation) and other efficiency improvement activities (such as our global procurement and outsourcing initiatives); variability in our
effective income tax rate (due to factors including the timing and amount of discrete tax events and changes to unrecognized tax benefits); and other risks detailed from time to time in our filings with the U.S. Securities and Exchange Commission
(the SEC). We disclaim any intent or obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise.



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##### Table of Contents

Results of Operations



First Quarter of Fiscal Year 2008 Compared to First Quarter of Fiscal Year 2007



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 quarters of fiscal years 2008 and 2007:



|                               |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|------------------------------ |  | -------------------- | ----- | - | ---------------- | ----- | - | ------------------ | - | ----- | --------- |  | ----- | - |  | - | ---- | - |  | ----- | -
|                               |  | Fiscal Quarter Ended |       |   |                  |       |   |                    |  
|                               |  | December 28,2007     |       |   | December 29,2006 |       |   | Increase(Decrease) |  
|                               |  | $                    |       |   | % ofSales        |       |   | $                  |   |       | % ofSales |  |       | $ |  |   | %    |  
|(dollars in millions)          |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Sales by Segment:              |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Scientific Instruments         |  | $                    | 197.0 |   |                  | 83.0  | % |                    | $ | 176.9 |           |  | 81.2  | % |  | $ | 20.1 |   |  | 11.4  | %
|Vacuum Technologies            |  |                      | 40.4  |   |                  | 17.0  |   |                    |   | 41.0  |           |  | 18.8  |   |  |   | (0.6 | ) |  | (1.6  | )
|                               |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Total company                  |  | $                    | 237.4 |   |                  | 100.0 | % |                    | $ | 217.9 |           |  | 100.0 | % |  | $ | 19.5 |   |  | 8.9   | %
|                               |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|                               |  |                      |       |   |                  |      
|Operating Earnings by Segment: |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Scientific Instruments         |  | $                    | 19.8  |   |                  | 10.1  | % |                    | $ | 18.9  |           |  | 10.7  | % |  | $ | 0.9  |   |  | 5.0   | %
|Vacuum Technologies            |  |                      | 7.7   |   |                  | 19.1  |   |                    |   | 8.4   |           |  | 20.4  |   |  |   | (0.7 | ) |  | (7.8  | )
|                               |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Total segments                 |  |                      | 27.5  |   |                  | 11.6  |   |                    |   | 27.3  |           |  | 12.5  |   |  |   | 0.2  |   |  | 1.0   |  
|General corporate              |  |                      | (3.4  | ) |                  | (1.4  | ) |                    |   | (4.4  | )         |  | (2.0  | ) |  |   | 1.0  |   |  | (22.3 | )
|                               |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Total company                  |  | $                    | 24.1  |   |                  | 10.2  | % |                    | $ | 22.9  |           |  | 10.5  | % |  | $ | 1.2  |   |  | 5.5   | %
|                               |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  



Scientific
Instruments. The increase in Scientific Instruments sales was primarily attributable to higher sales volume, in particular from mass spectrometers and other analytical instruments. Sales increased into both industrial (which includes
environmental, food and energy) and life science applications.



Scientific Instruments operating earnings for the first quarter of fiscal year 2008 included restructuring and other related costs of $2.0 million, acquisition-related intangible amortization of $1.8 million, share-based compensation
expense of $0.8 million and amortization of $0.5 million related to inventory written up primarily in connection with the acquisition of IonSpec Corporation (IonSpec). In comparison, Scientific Instruments operating earnings for the
first quarter of fiscal year 2007 included restructuring and other related costs of $0.1 million, acquisition-related intangible amortization of $2.2 million, share-based compensation expense of $1.0 million and amortization of $0.3 million related
to inventory written up in connection with the acquisition of IonSpec. Excluding the impact of these items, operating earnings were flat as a percentage of sales. Higher costs relating to sales commissions on strong orders, new product introductions
and other initiatives during the first quarter of fiscal year 2008 offset the positive impact of sales volume leverage (as the higher sales volume improved the absorption rate of fixed and semi-variable costs) and a favorable mix shift toward
higher-margin products including mass spectrometers and consumables.



Vacuum Technologies. Vacuum Technologies had a very strong quarter in the first quarter of fiscal 2007 with revenues and operating profit margins highest of any quarter in that fiscal year. Compared to this strong year-ago quarter,
sales remained relatively flat. A slight increase into industrial applications was more than offset by a decrease into the life sciences applications. Sales increased sequentially by 5.5% compared to the $38.3 million recorded in the fourth quarter
of fiscal 2007.



Vacuum Technologies operating earnings for the
first quarters of fiscal year 2008 and 2007 include the impact of share-based compensation expense of $0.1 million and $0.7 million, respectively. Excluding the impact



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##### Table of Contents

of these items, the decrease in Vacuum Technologies operating earnings as a percentage of sales reflects the unusually strong results in the first quarter of
fiscal year 2007.



Consolidated Results



The following table presents comparisons of our sales and other selected
consolidated financial results for the first quarters of fiscal years 2007 and 2006:



|                                             |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |  |      |  
|-------------------------------------------- |  | -------------------- | ----- | - | ---------------- | ----- | - | ------------------ | - | ----- | --------- |  | ----- | - |  | - | ---- |  | ---- | -
|                                             |  | Fiscal Quarter Ended |       |   |                  |       |   |                   
|                                             |  | December 28,2007     |       |   | December 29,2006 |       |   | Increase(Decrease) |  
|                                             |  | $                    |       |   | % ofSales        |       |   | $                  |   |       | % ofSales |  |       | $ |  | % |     
|(dollars in millions, except per share data) |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |  |      |  
|Sales                                        |  | $                    | 237.4 |   |                  | 100.0 | % |                    | $ | 217.9 |           |  | 100.0 | % |  | $ | 19.5 |  | 8.9  | %
|                                             |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |  |      |  
|Gross profit                                 |  |                      | 107.3 |   |                  | 45.2  |   |                    |   | 99.7  |           |  | 45.7  |   |  |   | 7.6  |  | 7.6  |  
|                                             |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |  |      |  
|Operating expenses:                          |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |  |      |  
|Selling, general and administrative          |  |                      | 66.0  |   |                  | 27.8  |   |                    |   | 61.2  |           |  | 28.0  |   |  |   | 4.8  |  | 7.8  |  
|Research and development                     |  |                      | 17.2  |   |                  | 7.2   |   |                    |   | 15.6  |           |  | 7.2   |   |  |   | 1.6  |  | 10.1 |  
|                                             |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |  |      |  
|Total operating expenses                     |  |                      | 83.2  |   |                  | 35.0  |   |                    |   | 76.8  |           |  | 35.2  |   |  |   | 6.4  |  | 8.3  |  
|                                             |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |  |      |  
|Operating earnings                           |  |                      | 24.1  |   |                  | 10.2  |   |                    |   | 22.9  |           |  | 10.5  |   |  |   | 1.2  |  | 5.5  |  
|Interest income                              |  |                      | 1.9   |   |                  | 0.8   |   |                    |   | 1.3   |           |  | 0.6   |   |  |   | 0.6  |  | 52.7 |  
|Interest expense                             |  |                      | (0.4  | ) |                  | (0.2  | ) |                    |   | (0.5  | )         |  | (0.3  | ) |  |   | 0.1  |  | 15.9 |  
|Income tax expense                           |  |                      | (8.0  | ) |                  | (3.4  | ) |                    |   | (8.3  | )         |  | (3.8  | ) |  |   | 0.3  |  | 2.7  |  
|                                             |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |  |      |  
|Net Earnings                                 |  | $                    | 17.6  |   |                  | 7.4   | % |                    | $ | 15.4  |           |  | 7.0   | % |  | $ | 2.2  |  | 14.5 | %
|                                             |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |  |      |  
|Net earnings per diluted share               |  | $                    | 0.57  |   |                  |       |   |                    | $ | 0.49  |           |  |       |   |  | $ | 0.08 |  |      |  
|                                             |  |                      |       |   |                  |       |   |                    |   |       |           |  |       |   |  |   |      |  |      |  



Sales. As
discussed under the heading Segment Results above, sales by the Scientific Instruments and Vacuum Technologies segments in the first quarter of fiscal year 2008 increased (decreased) by 11.4% and (1.6)%, respectively, compared to the
prior-year quarter. On a consolidated basis, sales grew 8.9% in the first quarter of fiscal year 2008, with solid sales growth for both industrial (which includes environmental, food and energy) and life science applications.



For geographic reporting purposes, we use four regionsNorth America
(excluding Mexico), Europe (including the Middle East and Africa), Asia Pacific (including India) and Latin America (including Mexico). Sales by geographic region in the first quarters of fiscal years 2008 and 2007 were as follows:



|                            |  |                      |       |           |                  |   |   |                    |           |  |       |   |  |   |      |  |      |  
|--------------------------- |  | -------------------- | ----- | --------- | ---------------- | - | - | ------------------ | --------- |  | ----- | - |  | - | ---- |  | ---- | -
|                            |  | Fiscal Quarter Ended |       |           |                  |  
|                            |  | December 28,2007     |       |           | December 29,2006 |   |   | Increase(Decrease) |          
|                            |  | $                    |       | % ofSales |                  |   | $ |                    | % ofSales |  |       | $ |  | % |     
|(dollars in millions)       |  |                      |       |           |                  |   |   |                    |           |  |       |   |  |   |      |  |      |  
|Sales by Geographic Region: |  |                      |       |           |                  |   |   |                    |           |  |       |   |  |   |      |  |      |  
|North America               |  | $                    | 80.6  |           | 34.0             | % |   | $                  | 74.7      |  | 34.3  | % |  | $ | 5.9  |  | 7.9  | %
|Europe                      |  |                      | 96.2  |           | 40.5             |   |   |                    | 94.1      |  | 43.2  |   |  |   | 2.1  |  | 2.2  |  
|Asia Pacific                |  |                      | 47.8  |           | 20.1             |   |   |                    | 41.1      |  | 18.8  |   |  |   | 6.7  |  | 16.4 |  
|Latin America               |  |                      | 12.8  |           | 5.4              |   |   |                    | 8.0       |  | 3.7   |   |  |   | 4.8  |  | 59.4 |  
|                            |  |                      |       |           |                  |   |   |                    |           |  |       |   |  |   |      |  |      |  
|Total company               |  | $                    | 237.4 |           | 100.0            | % |   | $                  | 217.9     |  | 100.0 | % |  | $ | 19.5 |  | 8.9  | %
|                            |  |                      |       |           |                  |   |   |                    |           |  |       |   |  |   |      |  |      |  



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The sales increase in North America was primarily driven by higher sales of low-volume, high-selling
price magnet-based products and, to a lesser extent, analytical instruments, which were partially offset by lower sales of vacuum products. The increase in sales in Europe was primarily attributable to stronger demand for our analytical instruments
and consumables, but was partially offset by lower sales of low-volume, high-selling price magnet-based products and vacuum products. The increases in sales in Asia Pacific and Latin America were primarily attributable to stronger demand across a
broad range of products, in particular analytical instruments and vacuum products. The weaker U.S. dollar also had a positive effect on the reported sales increases in Europe, Asia Pacific and Latin America.



As described above, the increase in North American sales was more pronounced
and the increase in European sales was less pronounced compared to the prior-year quarter due to the timing of sales of certain low-volume, high-selling price magnet-based products. We do not consider these geographic shifts to be indicative of any
particular trend for magnet-based products as a whole, but rather to be reflective of the variability in results that these low-volume, high-selling price magnet-based products can create.



Gross Profit. Gross profit for the first quarter of fiscal year
2008 reflects the impact of $1.4 million in amortization expense relating to acquisition-related intangible assets, $0.5 million in amortization expense related to inventory written up primarily in connection with the IonSpec acquisition, $0.5
million in restructuring and other related costs and share-based compensation expense of $0.1 million. In comparison, gross profit for the first quarter of fiscal year 2007 reflects the impact of $1.3 million in amortization expense relating to
acquisition-related intangible assets, $0.3 million in amortization expense related to inventory written up in connection with the IonSpec acquisition and share-based compensation expense of $0.1 million. Excluding the impact of these items, the
gross profit percentage was relatively flat.



Selling,
General and Administrative. Selling, general and administrative expenses for the first quarter of fiscal year 2008 included $0.4 million in amortization expense relating to acquisition-related intangible assets, $1.2 million in restructuring and
other related costs and $1.4 million in share-based compensation expense. In comparison, selling, general and administrative expenses for the first quarter of fiscal year 2007 included $0.9 million in amortization expense relating to
acquisition-related intangible assets, $0.1 million in restructuring and other related costs and $2.6 million in share-based compensation expense. Excluding the impact of these items, selling, general and administrative expenses as a percentage of
sales were relatively flat. Higher costs relating to sales commissions on strong orders, new product introductions and other initiatives during the first quarter of fiscal year 2008 offset the positive impact of sales volume leverage (as the higher
sales volume improved the absorption rate of fixed and semi-variable costs) and a favorable mix shift toward higher-margin products including mass spectrometers and consumables.



Research and Development. Research and development expenses for the first quarter of fiscal year 2008 reflect
the impact of share-based compensation expense of $0.1 million and $0.3 million in restructuring and other related costs. In comparison, research and development expenses for the first quarter of fiscal year 2007 reflect the impact of share-based
compensation expense of $0.1 million. Excluding the impact of these items, research and development expenses were flat as a percentage of sales.



Restructuring Activities. Between fiscal years 2003 and 2007, we committed to several restructuring plans in order to adjust our organizational
structure, improve operational efficiencies and eliminate redundant or excess costs resulting from acquisitions or dispositions during those periods.From the respective inception dates of these plans through December 28, 2007, we have
incurred a total of $18.8 million in restructuring expense and a total of $6.2 million in other costs related directly to those plans (comprised primarily of employee retention and relocation costs and accelerated depreciation of assets disposed
upon the closure of facilities). During the first quarter of fiscal year 2008, there was no significant activity under these plans except for the fiscal year 2007 plan as described below.



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Fiscal Year 2007 Plan. During the third quarter of fiscal year 2007, we committed to a plan to
combine and optimize the development and assembly of most of our NMR and mass spectrometry products, to further centralize related administration and other functions and to reallocate certain resources toward more rapidly growing product lines and
geographies. As part of the plan, we are creating an information rich detection (IRD) center in Walnut Creek, California, where NMR operations currently located in Palo Alto, California will be integrated with mass spectrometry
operations already located in Walnut Creek. Merging our IRD talent base into this single location will capitalize on our strength in NMR and mass spectrometry and enhance our ability to develop innovative IRD solutions that are more powerful,
complementary, routine and user-friendly. Underscoring our commitment to IRD and the benefits that a combined location and organization will provide, we will invest in a new 45,000 square foot building and a substantial remodel of an existing
building there to house the IRD center.



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



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



The following table sets forth changes in our restructuring liability
relating to the foregoing plan during the first quarter of fiscal year 2008:



|                                               |  |                  |       |     |                    |   |     |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | ----- | --- | ------------------ | - | --- | ----- |  | - | ----- | -
|                                               |  | Employee-Related |       |     | Facilities-Related |   |     | Total | 
|(in thousands)                                 |  |                  |       |     |                    |   |     |       |  |   |       |  
|Balance at September 28, 2007                  |  | $                | 2,222 |     |                    | $ |    |       |  | $ | 2,222 |  
|Charges to expense, net                        |  |                  | 453   |     |                    |   | 761 |       |  |   | 1,214 |  
|Cash payments                                  |  |                  | (181  | )   |                    |   | (77 | )     |  |   | (258  | )
|Foreign currency impacts and other adjustments |  |                  | 24    |     |                    |   | (20 | )     |  |   | 4     |  
|                                               |  |                  |       |     |                    |   |     |       |  |   |       |  
|Balance at December 28, 2007                   |  | $                | 2,518 |     |                    | $ | 664 |       |  | $ | 3,182 |  
|                                               |  |                  |       |     |                    |   |     |       |  |   |       |  
|                                               |  |                  |      
|Total expense since inception of plan          |  |                  |       |     |                    |   |     |       |  |   |       |  
|(in millions)                                  |  |                  |       |     |                    |   |     |       |  |   |       |  
|Restructuring expense                          |  |                  | $     | 3.5 |                   
|                                               |  |                  |       |     |                    |   |     |       |  |   |       |  
|Other restructuring related costs              |  |                  | $     | 2.8 |                   
|                                               |  |                  |       |     |                    |   |     |       |  |   |       |  



The restructuring
charges of $1.2 million recorded during the first quarter of fiscal year 2008 related to employee termination benefits and costs associated with the closure of leased facilities. We also incurred $0.8 million in other restructuring-related costs
which were comprised of $0.6 million in employee retention costs and $0.2 million in facilities-related costs including decommissioning costs and a non-cash charge for accelerated depreciation of assets to be disposed upon the closure of facilities.



Interest Income.The increase in interest income was
primarily due to higher average invested cash balances and higher rates of interest on those balances during the first quarter of fiscal year 2008 compared to the first quarter of fiscal year 2007.



Income Tax Expense.The effective income tax rate was 31.4% for the
first quarter of fiscal year 2008, compared to 35.0% for the first quarter of fiscal year 2007. The lower effective tax rate in the first quarter of



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fiscal year 2008 was primarily due to the release of $1.5 million in tax reserves resulting from the positive outcome of tax uncertainties during that
period. Excluding the impact of this item, the effective income tax rate for the first quarter of fiscal year 2008 was higher than the rate for the first quarter of fiscal year 2007 due primarily to U.S. state taxes on intercompany dividends, a
write-down of non-U.S. deferred tax assets resulting from an income tax rate reduction that was approved during the current quarter and the expiration of the U.S. federal research and development tax credit during the first quarter of fiscal year
2008.



We currently expect our effective income tax rate to be
between 34.5% and 35.5% for the full fiscal year 2008.



Net
Earnings. Net earnings for the first quarter of fiscal year 2008 reflect the impact of $1.6 million in share-based compensation expense, $1.8 million in acquisition-related intangible amortization, $2.0 million in restructuring and other
related costs and $0.5 million in amortization related to inventory written up primarily in connection with the acquisition of IonSpec. Net earnings for the first quarter of fiscal year 2007 reflect the impact of $2.8 million in share-based
compensation expense, $2.2 million in acquisition-related intangible amortization, $0.1 million in restructuring and other related costs and $0.3 million in amortization related to inventory written up in connection with the acquisition of IonSpec.
Excluding the impact of these items, the increase in net earnings resulted primarily from higher sales volume, higher interest income and the impact of the lower effective income tax rate in the first quarter of fiscal year 2008.



Liquidity and Capital Resources



We generated $17.1 million of cash from operating activities in the first
quarter of fiscal year 2008, compared to $22.4 million generated in the first quarter of fiscal year 2007. The decrease in cash from operating activities was primarily driven by a relative increase in inventories ($9.5 million), partially offset by
a relative decrease in accounts receivable ($3.7 million) and higher net earnings ($2.2 million). The relative increase in inventories was primarily due to a build-up of inventory to support increased orders during the first quarter of fiscal 2008,
new product introductions and the transition of certain products to new manufacturing locations. The relative decrease in accounts receivable was primarily due to higher collections in the first quarter of fiscal year 2008.



We used $13.1 million of cash for investing activities in the first quarter
of fiscal year 2008, which compares to $4.9 million used for investing activities in the first quarter of fiscal year 2007. The increase in cash used for investing activities in the first quarter of fiscal year 2008 was primarily the result of the
acquisition in November 2007 of certain assets and assumed certain liabilities of Analogix, Inc. (the Analogix Business).



We used $3.4 million of cash for financing activities in the first quarter of fiscal year 2008, which compares to $35.0 million used for financing
activities in the first quarter of fiscal year 2007. The decrease in cash used for financing activities was primarily due to lower expenditures to repurchase and retire common stock (such expenditures were made in both periods as a result of a
continued effort to utilize excess cash to reduce the number of outstanding common shares). Compared to the year-ago quarter, higher proceeds from the issuance of common stock due to higher stock option exercise volume also contributed to the net
decrease in cash used for financing activities during the first quarter of fiscal year 2008.



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 consolidated financial statements. As of December 28, 2007, a total of $21.5 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 December 28, 2007 and September 28, 2007, we had a $25.0 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



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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 December 28, 2007.



In connection with certain acquisitions, we have accrued but not yet paid a portion of the purchase price that has been retained to secure the respective
sellers indemnification obligations.



The following table
summarizes outstanding purchase price amounts retained and the date they will become payable (net of any indemnification claims) as of December 28, 2007:



|                  |  |                 |  |              
|----------------- |  | --------------- |  | -------------
|Acquired Business |  | Retained Amount |  | Date Payable 
|Analogix Business |  | $1.3 million    |  | November 2009
|IonSpec           |  | $0.7 million    |  | February 2008



As of
December 28, 2007, up to a maximum of $33.3 million could be payable through December 2010 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 key terms of outstanding contingent consideration arrangements as of December 28, 2007:



|                  |  |                                      |  |                    |  |                            
|----------------- |  | ------------------------------------ |  | ------------------ |  | ---------------------------
|Acquired Business |  | Remaining Amount Available (maximum) |  | Measurement Period |  | Measurement Period End Date
|Analogix Business |  | $4.0 million                         |  | 3 years            |  | December 2010              
|IonSpec           |  | $14.0 million                        |  | 3 years            |  | April 2009                 
|Polymer Labs      |  | $15.3 million                        |  | 3 years            |  | December 2008              



In addition to the
above amounts, we accrued $4.0 million in the first quarter of fiscal year 2008 for the final contingent consideration payment relating to the Magnex Scientific Limited (Magnex) business acquired in November 2004. This amount will be
paid during the second quarter of fiscal year 2008.



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



We had no material non-cancelable commitments for capital expenditures as of December 28, 2007. In the aggregate, we
currently anticipate that our capital expenditures will be about 3.5% of sales for the full fiscal year 2008.



As discussed above, in April 2007, we committed to a plan (the Fiscal Year 2007 Plan) to combine and optimize the development and assembly of
most of our NMR and mass spectrometry products, to further centralize related administration and other functions and to reallocate certain resources toward more rapidly growing product lines and geographies. In connection with this plan, we expect
to make capital expenditures of up to $25 million, which began in the fourth quarter of fiscal year 2007 and will continue through the first half of fiscal year 2009. We expect that a significant portion of these expenditures will fall within our
typical capital spending pattern (of approximately 3% of sales) measured over a two-year period. We also expect to incur total restructuring and other related costs associated with this plan of between $9.5 million and $14.5 million, of which $4.3
million was incurred in fiscal year 2007 and $2.0 million was incurred in the first quarter of fiscal



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year 2008. Some portion of these costs is expected to be settled through the second quarter of fiscal year 2009, except for certain lease termination-related
costs, which might be settled as late as the fourth quarter of fiscal year 2012. A total of $8.0 million to $12.5 million of these costs are expected to result in cash expenditures.



In January 2007, our Board of Directors approved a stock repurchase program under which we are authorized to utilize up to
$100 million to repurchase shares of our common stock. This repurchase program is effective until December 31, 2008. During the first quarter of fiscal year 2008, we repurchased and retired 209,000 shares under this repurchase program at an
aggregate cost of $14.3 million. As of December 28, 2007, we had remaining authorization to repurchase $36.1 million of our common stock under this program.



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



Contractual Obligations and Other Commercial Commitments



The following table summarizes the amount and estimated timing of future cash expenditures relating to principal payments on
outstanding 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 December 28, 2007:



|                                          |  |                             |        |              |      |        |      |   |        |  |      |       |            |   |        |  |   |       |  |   |        |  |   |       
|----------------------------------------- |  | --------------------------- | ------ | ------------ | ---- | ------ | ---- | - | ------ |  | ---- | ----- | ---------- | - | ------ |  | - | ----- |  | - | ------ |  | - | ------
|                                          |  | NineMonthsEndingOct. 3,2008 |        | Fiscal Years |      |       
|                                          |  |                             | 2009   |              | 2010 |        | 2011 |   | 2012   |  | 2013 |       | Thereafter |   | Total 
|(in thousands)                            |  |                             |        |              |      |        |      |   |        |  |      |       |            |   |        |  |   |       |  |   |        |  |   |       
|Operating leases                          |  | $                           | 6,943  |              | $    | 6,826  |      | $ | 4,665  |  | $    | 2,524 |            | $ | 2,153  |  | $ | 1,795 |  | $ | 3,814  |  | $ | 28,720
|Long-term debt(including current portion) |  |                             | 6,250  |              |      |       |      |   | 6,250  |  |      |      |            |   | 6,250  |  |   |      |  |   | 6,250  |  |   | 25,000
|Other long-term liabilities               |  |                             | 575    |              |      | 3,217  |      |   | 2,931  |  |      | 4,253 |            |   | 2,749  |  |   | 2,652 |  |   | 24,558 |  |   | 40,935
|                                          |  |                             |        |              |      |        |      |   |        |  |      |       |            |   |        |  |   |       |  |   |        |  |   |       
|Total                                     |  | $                           | 13,768 |              | $    | 10,043 |      | $ | 13,846 |  | $    | 6,777 |            | $ | 11,152 |  | $ | 4,447 |  | $ | 34,622 |  | $ | 94,655
|                                          |  |                             |        |              |      |        |      |   |        |  |      |       |            |   |        |  |   |       |  |   |        |  |   |       



As of
December 28, 2007, 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 $33.3 million
related to acquisitions as discussed under Liquidity and Capital Resources above, the specific amounts of which are not currently determinable.



Recent Accounting Pronouncements



In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies to previous accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007. We do not expect the adoption of SFAS 157 to have a material impact on our financial condition or results of operations.



In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB
Statement 115, which provides companies with an option to measure eligible financial assets and liabilities in their entirety at fair value. The fair value option may be applied



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instrument by instrument, and may be applied only to entire instruments. If a company elects the fair value option for an eligible item, changes in the
items fair value must be reported as unrealized gains and losses in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are evaluating the options provided under SFAS
159 and their potential impact on our financial condition and results of operations if implemented.



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



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



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



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



At December 28, 2007, there were no outstanding forward contracts
designated as cash flow hedges of forecasted transactions. During the first quarter of fiscal year 2008, no foreign exchange gains or losses from cash flow hedge ineffectiveness were recognized.



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Our foreign exchange forward contracts generally range from one to 12 months in original maturity. A
summary of all foreign exchange forward contracts that were outstanding as of December 28, 2007 follows:



|                  |  |                   |       |                        |   |       
|----------------- |  | ----------------- | ----- | ---------------------- | - | ------
|                  |  | NotionalValueSold |       | NotionalValuePurchased
|(in thousands)    |  |                   |       |                        |   |       
|Australian dollar |  | $                 |      |                        | $ | 36,849
|Euro              |  |                   |      |                        |   | 26,532
|British pound     |  |                   |      |                        |   | 9,363 
|Canadian dollar   |  |                   | 2,912 |                        |   |      
|Japanese yen      |  |                   | 2,309 |                        |   |      
|                  |  |                   |       |                        |   |       
|Total             |  | $                 | 5,221 |                        | $ | 72,744
|                  |  |                   |       |                        |   |       



Interest Rate
Risk. We have no material exposure to market risk for changes in interest rates. We invest any excess cash primarily in short-term U.S. Treasury securities and money market funds, and changes in interest rates would not be material to our
financial condition or results of operations. We enter into debt obligations principally to support general corporate purposes, including working capital requirements, capital expenditures and acquisitions. At December 28, 2007, our debt
obligations had fixed interest rates.



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



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



Debt
Obligations.



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



|                                          |  |                              |       |   |              |      |   |   |      |   |       |      |  |   |      |   |  |            |       |   |       |   |   |   |  |   |       |   |  |   |        |  
|----------------------------------------- |  | ---------------------------- | ----- | - | ------------ | ---- | - | - | ---- | - | ----- | ---- |  | - | ---- | - |  | ---------- | ----- | - | ----- | - | - | - |  | - | ----- | - |  | - | ------ | -
|                                          |  | NineMonthsEndingOct. 3, 2008 |       |   | Fiscal Years |      |   |   |     
|                                          |  |                              | 2009  |   |              | 2010 |   |   | 2011 |   |       | 2012 |  |   | 2013 |   |  | Thereafter |       |   | Total |  
|(dollars in thousands)                    |  |                              |       |   |              |      |   |   |      |   |       |      |  |   |      |   |  |            |       |   |       |   |   |   |  |   |       |   |  |   |        |  
|Long-term debt (includingcurrent portion) |  | $                            | 6,250 |   |              | $    |  |   |      | $ | 6,250 |      |  | $ |     |   |  | $          | 6,250 |   |       | $ |  |   |  | $ | 6,250 |   |  | $ | 25,000 |  
|Average interest rate                     |  |                              | 6.7   | % |              |      |  | % |      |   | 6.7   | %    |  |   |     | % |  |            | 6.7   | % |       |   |  | % |  |   | 6.7   | % |  |   | 6.7    | %



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



For our defined benefit pension plans, we make assumptions regarding several variables including the expected long-term rate
of return on plan assets and the discount rate in order to determine defined benefit pension plan expense for the year. This expense is referred to as net periodic pension cost. We assess the expected long-term rate of return on plan
assets and discount rate assumption for each defined benefit plan based on relevant market conditions as prescribed by SFAS 87 and make adjustments to the assumptions as appropriate. On an annual basis, we analyze the rates of return on plan assets
and discount rates used and determine that these rates are reasonable. For rates of return, this analysis is based on a review of the nature of the underlying assets,



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the allocation of those assets and their historical performance relative to the overall markets in the countries where the related plans are effective.
Historically, our assumed asset allocations have not varied significantly from the actual allocations. Discount rates are based on the prevailing market long-term interest rates in the countries where the related plans are effective. As of
September 28, 2007, the estimated long-term rate of return on our defined benefit pension plan assets ranged from 0.5% to 7.1% (weighted-average of 5.9%), and the assumed discount rate for our defined benefit pension plan obligations ranged
from 2.0% to 5.7% (weighted-average of 5.5%).



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 $2.3 million in fiscal year 2007, $2.3 million in fiscal year 2006 and $1.6 million
in fiscal year 2005 (excluding a settlement loss), and expect our net periodic pension cost to be approximately $1.7 million in fiscal year 2008. A one percent decrease in the weighted-average estimated return on plan assets or assumed discount rate
would increase our net periodic pension cost for fiscal year 2008 by $1.1 million or $0.4 million, respectively. As of September 28, 2007, our projected benefit obligation relating to defined benefit pension plans was $53.3 million. A one
percent decrease in the weighted-average estimated discount rate would increase this obligation by $11.0 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 (December 28, 2007), our
disclosure controls and procedures were effective.



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



Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the first quarter of our fiscal year 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II



OTHER INFORMATION



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



SeeItem 1ARisk Factors presented in our Annual Report on Form 10-K for the fiscal year ended September 28, 2007, which we encourage you to carefully consider.



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



(c)The following table summarizes information relating to our stock repurchases during the first quarter of fiscal year 2008:



|                                         |  |                       |  |                            |       |                                                                          |   |                                                                     |  |   |       
|---------------------------------------- |  | --------------------- |  | -------------------------- | ----- | ------------------------------------------------------------------------ | - | ------------------------------------------------------------------- |  | - | ------
|Fiscal Month                             |  | SharesRepurchased (1) |  | Average PricePer Share (1) |       | Total Value of SharesRepurchased as Part ofPublicly AnnouncedPlan (2)(3) |   | Maximum Total Valueof Shares that May YetBe Purchased Under thePlan
|(In thousands, except per share amounts) |  |                       |  |                            |       |                                                                          |   |                                                                     |  |   |       
|Balance  September 28, 2007             |  |                       |  |                            |       |                                                                          |   |                                                                     |  | $ | 50,392
|September 29, 2007  October 26, 2007    |  |                      |  | $                          |      |                                                                          | $ |                                                                    |  |   | 50,392
|October 27, 2007  November 23, 2007     |  | 45                    |  |                            | 68.14 |                                                                          |   | 3,073                                                               |  |   | 47,319
|November 24, 2007  December 28, 2007    |  | 176                   |  |                            | 68.55 |                                                                          |   | 11,182                                                              |  | $ | 36,137
|                                         |  |                       |  |                            |       |                                                                          |   |                                                                     |  |   |       
|Total shares repurchased                 |  | 221                   |  | $                          | 68.47 |                                                                          | $ | 14,255                                                              |  |   |       
|                                         |  |                       |  |                            |       |                                                                          |   |                                                                     |  |   |       

---

|(1) | Includes 12,000 shares tendered to the Company by employees in settlement of employee tax withholding obligations due from those employees upon the vesting of restricted stock.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In January 2007, our Board of Directors approved a stock repurchase program under which we were authorized to utilize up to $100 million to repurchase shares of our common stock.
This repurchase program is effective through December 31, 2008.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Excludes commissions on repurchases.
|--- | ------------------------------------



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



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



|           |   |  |                                                                                                                  |  |                           |  |                  |  |               |  |              
|---------- | - |  | ---------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ---------------- |  | ------------- |  | -------------
|           |   |  |                                                                                                                  |  | Incorporated by Reference |  |                 
|ExhibitNo. |   |  | Exhibit Description                                                                                              |  | Form                      |  | Date             |  | ExhibitNumber |  | FiledHerewith
|10.5       | * |  | Varian, Inc. Omnibus Stock Plan, as amended and restated as of November 8, 2007                                  |  | 8-K                       |  | February 1, 2008 |  | 10.1          |  |              
|           |   |  |                                                                                                                  |  |                          
|10.17      | * |  | Form of Restricted Stock Agreement between Varian, Inc. and Executive Officers (used beginning November 8, 2007) |  |                           |  |                  |  |               |  | X            
|           |   |  |                                                                                                                  |  |                          
|10.26      | * |  | Description of Compensatory Arrangements Between Varian, Inc. and Non-Employee Directors                         |  | 8-K                       |  | February 1, 2008 |  | 10.2          |  |              
|           |   |  |                                                                                                                  |  |                          
|10.28      | * |  | Description of Certain Compensatory Arrangements Between Varian S.p.A. and Sergio Piras                          |  |                           |  |                  |  |               |  | X            
|           |   |  |                                                                                                                  |  |                          
|31.1       |   |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.              |  |                           |  |                  |  |               |  | X            
|           |   |  |                                                                                                                  |  |                          
|31.2       |   |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.              |  |                           |  |                  |  |               |  | X            
|           |   |  |                                                                                                                  |  |                          
|32.1       |   |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.              |  |                           |  |                  |  |               |  |              
|           |   |  |                                                                                                                  |  |                          
|32.2       |   |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.              |  |                           |  |                  |  |               |  |              

---

|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------



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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 4, 2008 |  |  |  | By:          |  | /s/ G. EDWARD MCCLAMMY
|                       |  |  |  |              |  |                        |  | G. Edward McClammy                                                                                                  
|                       |  |  |  |              |  |                        |  | Senior Vice President, Chief Financial Officerand Treasurer (Duly Authorized Officer andPrincipal Financial Officer)



32