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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 27, 2002



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)



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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 ̈



The number of shares of the registrants common stock outstanding as of January 24, 2003 was 33,806,113.



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##### Table of Contents

VARIAN, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 27, 2002



TABLE OF CONTENTS



|        |  |                                                                                       |  | Page
|------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I  |  | Financial Information                                                                 |  |     
|Item 1. |  | Financial Statements:                                                                 |  |     
|        |  | Unaudited Consolidated Condensed Statement of Earnings                                |  | 3   
|        |  | Unaudited Consolidated Condensed Balance Sheet                                        |  | 4   
|        |  | Unaudited Consolidated Condensed Statement of Cash Flows                              |  | 5   
|        |  | Notes to the Unaudited Consolidated Condensed Financial Statements                    |  | 6   
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 14  
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 23  
|Item 4. |  | Controls and Procedures                                                               |  | 25  
|       
|PART II |  | Other Information                                                                     |  |     
|Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  | 26  





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##### Table of Contents



PART I

FINANCIAL INFORMATION



Item 1.    Financial Statements



VARIAN, INC. AND SUBSIDIARY COMPANIES



UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS

(In thousands, except per share amounts)



|                                       |  | Fiscal Quarter Ended
|-------------------------------------- |  | --------------------
|                                       |  | Dec. 27, 2002       
|Sales                                  |  | $                   
|Cost of sales                          |  |                     
|                                       |  |                     
|Gross profit                           |  |                     
|                                       |  |                     
|Operating expenses                     |  |                     
|Sales and marketing                    |  |                     
|Research and development               |  |                     
|General and administrative             |  |                     
|                                       |  |                     
|Total operating expenses               |  |                     
|                                       |  |                     
|Operating earnings                     |  |                     
|Interest expense, net                  |  |                     
|                                       |  |                     
|Earnings before income taxes           |  |                     
|Income tax expense                     |  |                     
|                                       |  |                     
|Net earnings                           |  | $                   
|                                       |  |                     
|Net earnings per share:                |  |                     
|Basic                                  |  | $                   
|                                       |  |                     
|Diluted                                |  | $                   
|                                       |  |                     
|Shares used in per share calculations: |  |                     
|Basic                                  |  |                     
|                                       |  |                     
|Diluted                                |  |                     
|                                       |  |                     





See accompanying Notes to the Unaudited Consolidated Condensed Financial Statements.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET

(In thousands, except par value amounts)



|                                                                                                                                                  |  | Dec. 27, 2002 |         |   | Sept. 27, 2002 |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | -------------- | -
|ASSETS                                                                                                                                            |  |               |         |   |                |  
|                                                                                                                                                 
|Current assets                                                                                                                                    |  |               |         |   |                |  
|Cash and cash equivalents                                                                                                                         |  | $             | 81,793  |   |                | $
|Accounts receivable, net                                                                                                                          |  |               | 155,156 |   |                |  
|Inventories                                                                                                                                       |  |               | 122,852 |   |                |  
|Deferred taxes                                                                                                                                    |  |               | 30,722  |   |                |  
|Other current assets                                                                                                                              |  |               | 16,649  |   |                |  
|                                                                                                                                                  |  |               |         |   |                |  
|Total current assets                                                                                                                              |  |               | 407,172 |   |                |  
|Property, plant, and equipment, net                                                                                                               |  |               | 106,337 |   |                |  
|Goodwill                                                                                                                                          |  |               | 115,936 |   |                |  
|Intangible assets, net                                                                                                                            |  |               | 11,671  |   |                |  
|Other assets                                                                                                                                      |  |               | 3,574   |   |                |  
|                                                                                                                                                  |  |               |         |   |                |  
|Total assets                                                                                                                                      |  | $             | 644,690 |   |                | $
|                                                                                                                                                  |  |               |         |   |                |  
|                                                                                                                                                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                              |  |               |         |   |                |  
|                                                                                                                                                 
|Current liabilities                                                                                                                               |  |               |         |   |                |  
|Current portion of long-term debt                                                                                                                 |  | $             | 3,382   |   |                | $
|Accounts payable                                                                                                                                  |  |               | 52,453  |   |                |  
|Deferred profit                                                                                                                                   |  |               | 22,011  |   |                |  
|Accrued liabilities                                                                                                                               |  |               | 120,359 |   |                |  
|                                                                                                                                                  |  |               |         |   |                |  
|Total current liabilities                                                                                                                         |  |               | 198,205 |   |                |  
|Long-term debt                                                                                                                                    |  |               | 36,802  |   |                |  
|Deferred taxes                                                                                                                                    |  |               | 8,248   |   |                |  
|Other liabilities                                                                                                                                 |  |               | 10,408  |   |                |  
|                                                                                                                                                  |  |               |         |   |                |  
|Total liabilities                                                                                                                                 |  |               | 253,663 |   |                |  
|                                                                                                                                                  |  |               |         |   |                |  
|                                                                                                                                                 
|Contingencies (Note 11)                                                                                                                           |  |               |         |   |                |  
|                                                                                                                                                 
|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33,754 shares at Dec. 27, 2002 and 33,951 shares at Sept. 27, 2002 |  |               | 245,210 |   |                |  
|Retained earnings                                                                                                                                 |  |               | 157,106 |   |                |  
|Accumulated other comprehensive loss                                                                                                              |  |               | (11,289 | ) |                |  
|                                                                                                                                                  |  |               |         |   |                |  
|Total stockholders equity                                                                                                                        |  |               | 391,027 |   |                |  
|                                                                                                                                                  |  |               |         |   |                |  
|Total liabilities and stockholders equity                                                                                                        |  | $             | 644,690 |   |                | $
|                                                                                                                                                  |  |               |         |   |                |  



See
accompanying Notes to the Unaudited Consolidated Condensed Financial Statements.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

(In thousands)



|                                                                                    |  | Fiscal Quarter Ended |       
|----------------------------------------------------------------------------------- |  | -------------------- | ------
|                                                                                    |  | Dec. 27, 2002        |       
|Cash flows from operating activities                                                |  |                      |       
|Net earnings                                                                        |  | $                    | 12,687
|Adjustments to reconcile net earnings to net cash provided by operating
activities: |  |                      |       
|Depreciation and amortization                                                       |  |                      | 5,440 
|Gain on disposition of property, plant and equipment                                |  |                      | (26   
|Changes in assets and liabilities, excluding effects of acquisitions:               |  |                      |       
|Accounts receivable, net                                                            |  |                      | 17,094
|Inventories                                                                         |  |                      | (5,218
|Other current assets                                                                |  |                      | 785   
|Other assets                                                                        |  |                      | 18    
|Accounts payable                                                                    |  |                      | (396  
|Deferred profit                                                                     |  |                      | 1,004 
|Accrued liabilities                                                                 |  |                      | (3,259
|Other liabilities                                                                   |  |                      | 502   
|                                                                                    |  |                      |       
|Net cash provided by operating activities                                           |  |                      | 28,631
|                                                                                    |  |                      |       
|Cash flows from investing activities                                                |  |                      |       
|Proceeds from sale of property, plant, and equipment                                |  |                      | 174   
|Purchase of property, plant, and equipment                                          |  |                      | (4,197
|Purchase of businesses, net of cash acquired                                        |  |                      | (532  
|                                                                                    |  |                      |       
|Net cash used in investing activities                                               |  |                      | (4,555
|                                                                                    |  |                      |       
|Cash flows from financing activities                                                |  |                      |       
|Net repayment of debt                                                               |  |                      | (931  
|Repurchase of common stock                                                          |  |                      | (8,074
|Issuance of common stock                                                            |  |                      | 1,380 
|Net transfers to Varian Medical Systems, Inc.                                       |  |                      | (270  
|                                                                                    |  |                      |       
|Net cash used in financing activities                                               |  |                      | (7,895
|                                                                                    |  |                      |       
|Effects of exchange rate changes on cash and cash equivalents                       |  |                      | 467   
|                                                                                    |  |                      |       
|Net increase in cash and cash equivalents                                           |  |                      | 16,648
|Cash and cash equivalents at beginning of period                                    |  |                      | 65,145
|                                                                                    |  |                      |       
|Cash and cash equivalents at end of period                                          |  | $                    | 81,793
|                                                                                    |  |                      |       
|Supplemental cash flow information                                                  |  |                      |       
|Income taxes paid                                                                   |  | $                    | 4,419 
|                                                                                    |  |                      |       
|Interest paid                                                                       |  | $                    | 648   
|                                                                                    |  |                      |       



See
accompanying Notes to the Unaudited Consolidated Condensed Financial Statements.





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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS



Note 1.    Unaudited Interim Consolidated Condensed Financial Statements



These unaudited interim consolidated financial statements of Varian, Inc. and its subsidiary companies (collectively, the
Company) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The September 27, 2002 balance sheet data was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. These interim 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 27, 2002 filed with the SEC. In the opinion of the Companys management, the interim 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 27, 2002 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
generally accepted accounting principles 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 is a major supplier of scientific instruments and consumable laboratory supplies, vacuum products
and services, and electronics manufacturing services. These businesses primarily serve life science, industrial, academic, and research customers. Until April 2, 1999, the business of the Company was operated as the Instruments Business of Varian
Associates, Inc. (VAI). On that date, VAI distributed to the holders of its common stock one share of common stock of the Company for each share of VAI (the Distribution).



The Companys fiscal years reported are the 52- or
53-week periods ending on the Friday nearest September 30. Fiscal year 2003 will comprise the 53-week period ending October 3, 2003, and fiscal year 2002 was comprised of the 52-week period ended September 27, 2002. The fiscal quarters ended
December 27, 2002 and December 28, 2001 each comprised 13 weeks.



Note 3.    Balance Sheet Detail



|                        |  | Dec. 27, 2002 |         | Sept. 27, 2002
|----------------------- |  | ------------- | ------- | --------------
|(In thousands)          |  |               |         |               
|Inventories             |  |               |         |               
|Raw materials and parts |  | $             | 64,616  |               
|Work in process         |  |               | 11,649  |               
|Finished goods          |  |               | 46,587  |               
|                        |  |               |         |               
|                        |  | $             | 122,852 |               
|                        |  |               |         |               



Note
4.    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 currencies other than the local functional currencies. These
contracts are accounted for under Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. (FAS) 133, Accounting for Derivative Instruments and Hedging Activities. The Company records
these contracts at fair value with the related gains and losses recorded



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



in general and administrative expenses. The gains and losses on these contracts are substantially offset by transaction losses and gains on
the underlying balance being hedged.



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 FAS 133. At December 27, 2002, forward contracts to
sell Japanese yen having an aggregate notional value of $6.9 million were designated as cash flow hedges of forecasted sale transactions. A loss of $0.1 million (net of tax) was recorded in accumulated other comprehensive loss as of December 27,
2002 relating to these forward contracts. During the fiscal quarter ended December 27, 2002, a loss of $0.1 million from hedge ineffectiveness was recognized and included in general and administrative expenses.



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 27, 2002 follows:



|                  |  | Notional Value Sold |        | Notional Value Purchased
|----------------- |  | ------------------- | ------ | ------------------------
|(in thousands)    |  |                     |        |                         
|Euro              |  | $                   |       |                         
|Australian dollar |  |                     |       |                         
|Japanese yen      |  |                     | 11,507 |                         
|Canadian dollar   |  |                     | 5,336  |                         
|British pound     |  |                     | 5,066  |                         
|Swedish krona     |  |                     |       |                         
|                  |  |                     |        |                         
|                  |  | $                   | 21,909 |                         
|                  |  |                     |        |                         



Note
5.    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 2003 were as follows:



|                                                                                   |  | Scientific Instruments |         | Vacuum Technologies |   | Electronics Manufacturing |  | Total
|---------------------------------------------------------------------------------- |  | ---------------------- | ------- | ------------------- | - | ------------------------- |  | -----
|(in thousands)                                                                     |  |                        |         |                     |   |                           |  |      
|Balance as of September 27, 2002                                                   |  | $                      | 112,854 |                     | $ | 966                       |  | $    
|Effect of exchange rate fluctuations on goodwill denominated in foreign
currencies |  |                        | 14      |                     |   |                          |  |      
|                                                                                   |  |                        |         |                     |   |                           |  |      
|Balance as of December 27, 2002                                                    |  | $                      | 112,868 |                     | $ | 966                       |  | $    
|                                                                                   |  |                        |         |                     |   |                           |  |      



In the
fiscal quarter ended March 29, 2002, the Company completed its first annual impairment test as required by FAS 142 and determined that there was no impairment of goodwill. The Company expects to complete its annual impairment assessment for fiscal
year 2003 in the second fiscal quarter.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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





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



|                            |  | Dec. 27, 2002 |        |   | Sept. 27, 2002 |  
|--------------------------- |  | ------------- | ------ | - | -------------- | -
|(in thousands)              |  |               |        |   |                |  
|Intangible assets           |  |               |        |   |                |  
|Existing technology         |  | $             | 6,972  |   |                | $
|Patents and core technology |  |               | 3,072  |   |                |  
|Trade names and trademarks  |  |               | 1,476  |   |                |  
|Customer lists              |  |               | 1,105  |   |                |  
|Other                       |  |               | 1,754  |   |                |  
|                            |  |               |        |   |                |  
|                            |  |               | 14,379 |   |                |  
|Accumulated amortization    |  |               | (2,708 | ) |                |  
|                            |  |               |        |   |                |  
|                            |  | $             | 11,671 |   |                | $
|                            |  |               |        |   |                |  



Amortization expense relating to intangible assets was $0.5 million and $0.1 million during the fiscal quarters ended December 27, 2002 and December 28, 2001, respectively.



Note 6.    Net Earnings Per Share



Basic earnings per share are calculated based on net earnings and the weighted-average number of shares
outstanding during the reported period. Diluted earnings per share include dilution from potential shares of common stock issuable pursuant to the exercise of outstanding stock options determined using the treasury stock method.



For the fiscal quarters ended December 27, 2002 and December
28, 2001, options to purchase 987,378 and 674,115 shares, respectively, were excluded from the calculation of diluted earnings per share as their effect would be anti-dilutive.



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



|                                            |  | Dec. 27, 2002 |  | Dec. 28, 2001
|------------------------------------------- |  | ------------- |  | -------------
|(in thousands)                              |  |               |  |              
|Weighted-average basic shares outstanding   |  | 33,896        |  | 33,297       
|Net effect of dilutive stock options        |  | 1,121         |  | 1,273        
|                                            |  |               |  |              
|Weighted-average diluted shares outstanding |  | 35,017        |  | 34,570       
|                                            |  |               |  |              



Note
7.    Comprehensive Income (Loss)



The Companys comprehensive income is comprised of net earnings, foreign currency translation adjustments, and changes in the fair value of highly effective cash flow hedge transactions. Comprehensive income was $18.0 million
and $10.0 million for the fiscal quarters ended December 27, 2002 and December 28, 2001, respectively. Accumulated other comprehensive loss is included as a component of stockholders equity.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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





Note
8.    Guarantees



As of
December 27, 2002, the Company and its subsidiaries had $55.1 million in uncommitted and unsecured credit facilities for working capital purposes with interest rates to be established at the time of borrowing. No borrowings were outstanding under
these credit facilities as of December 27, 2002. All of these credit facilities contain certain conditions and events of default customary for such facilities, with which the Company was in compliance. Of the $55.1 million in uncommitted and
unsecured credit facilities, a total of $33.7 million was limited for use by, or in favor of, certain subsidiaries. As of December 27, 2002, a total of $15.5 million of the $33.7 million was being utilized in the form of bank guarantees or
short-term standby letters of credit. These guarantees and letters of credit related primarily to advance payments or deposits made to the Companys subsidiaries by customers for which separate liabilities were recorded in the Unaudited
Consolidated Condensed Financial Statements at December 27, 2002. No amounts had been drawn by beneficiaries under these or any other outstanding guarantees or letters of credit as of that date.



Note 9.    Warranty Liability



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. A rollforward of the Companys estimated liability for product warranty for the fiscal quarter ended December 27, 2002
follows:



|(in thousands)                   |  |   |        |  
|-------------------------------- |  | - | ------ | -
|Balance as of September 27, 2002 |  | $ | 9,029  |  
|Charges to costs and expenses    |  |   | 2,299  |  
|Warranty expenditures            |  |   | (2,242 | )
|                                 |  |   |        |  
|Balance as of December 27, 2002  |  | $ | 9,086  |  
|                                 |  |   |        |  



Note
10.    Stock Repurchase Program



During fiscal year 2002, the Companys Board of Directors provided an authorization for the Company to repurchase up to 1,000,000 shares of its common stock until October 1, 2004. During the fiscal quarter ended December 27,
2002, the Company repurchased and retired 274,000 shares under this authorization at an aggregate cost of $8.1 million. As of December 27, 2002, the Company had remaining authorization for future repurchases of 676,000 shares.



Note 11.    Contingencies



Environmental matters.    The
Companys operations are subject to various foreign, federal, state, and local laws 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.



Under the terms of the Distribution,
the Company and Varian Semiconductor Equipment Associates, Inc. (VSEA) each agreed to indemnify Varian Medical Systems, Inc. (VMS) for one-third of certain environmental investigation, monitoring, and/or remediation costs
(after adjusting for any insurance proceeds and tax benefits recognized or realized by VMS for such costs), as further described below.



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



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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



investigation, monitoring, and/or remediation activities under the direction of, or in consultation with, foreign, federal, state, and/or
local agencies at certain current VMS or former VAI facilities. Under the terms of the Distribution, 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 tax benefits recognized or realized by VMS for such costs).



For certain of these sites and facilities, various uncertainties make it difficult to assess the likelihood and scope of further
environmental-related activities or to estimate the future costs of such activities if undertaken. As of December 27, 2002, 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 $1.8 million to $4.8 million (without discounting to present value). The time frame over which these costs are expected to be incurred varies with each site and facility, ranging up to approximately
30 years as of December 27, 2002. 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 $1.8 million as of
December 27, 2002.



As to other sites and
facilities, sufficient knowledge has been gained to be able to better estimate the scope and costs of future environmental-related activities. As of December 27, 2002, it was estimated that the Companys share of the future exposure for
environmental-related costs for these sites and facilities ranged in the aggregate from $6.2 million to $13.6 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 30 years as of December 27, 2002. As to each of these sites and facilities, it was determined that a particular amount within the range of 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 $7.5 million at December 27, 2002. The Company therefore had an
accrual of $5.0 million as of December 27, 2002, 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 $1.8 million described in the
preceding paragraph.



The foregoing amounts are
only estimates of anticipated future environmental-related costs, and the amounts actually spent in the years indicated may be greater or less than such estimates. The aggregate range of cost estimates reflects various uncertainties inherent in many
environmental investigation, monitoring, and remediation activities and the large number of sites where such investigation, monitoring, and remediation activities are being undertaken.



An insurance company agreed to pay a portion of certain of VAIs (now VMS) future
environmental-related costs for which the Company has an indemnity obligation, and the Company therefore has a $1.3 million receivable in other assets as of December 27, 2002 for the Companys share of such recovery. The Company has not reduced
any environmental-related liability in anticipation of recoveries from third parties.



Management believes that the Companys 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, management 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.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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





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 12.    Industry Segments



The Companys operations are grouped into three business segments: Scientific Instruments, Vacuum Technologies, and Electronics
Manufacturing. The Scientific Instruments segment designs, develops, manufactures, sells, and services equipment and consumable laboratory supplies for a broad range of life science and chemical analysis applications requiring identification,
quantification, and analysis of the composition or structure of liquids, solids, or gases. The Vacuum Technologies segment designs, develops, manufactures, sells, and services high-vacuum pumps, leak detection equipment, and related products and
services used to create, contain, control, and measure vacuum environments in a broad range of life science, industrial, and scientific applications requiring ultra-clean or high-vacuum environments. The Electronics Manufacturing segment provides
electronics manufacturing services, including design, support, manufacturing, and post-manufacturing services, of electronic assemblies and subsystems for a wide range of customers, in particular small- and medium-sized companies with low- to
medium-volume, high-mix requirements.



These
segments were determined based on how management views and evaluates the Companys operations.



Corporate includes shared costs of legal, tax, accounting, human resources, real estate, information technology, treasury, 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 may 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 may not be meaningful.



|                          |  | Fiscal Quarter Ended |       | Fiscal Quarter Ended |  
|------------------------- |  | -------------------- | ----- | -------------------- | -
|                          |  | Dec. 27, 2002        |       | Dec. 28, 2001        |  
|                          |  | Sales                |       | Sales                |  
|(in millions)             |  |                      |       |                      |  
|Scientific Instruments    |  | $                    | 124.3 |                      | $
|Vacuum Technologies       |  |                      | 29.4  |                      |  
|Electronics Manufacturing |  |                      | 42.0  |                      |  
|                          |  |                      |       |                      |  
|Total industry segments   |  |                      | 195.7 |                      |  
|General corporate         |  |                      |      |                      |  
|Interest expense, net     |  |                      |      |                      |  
|                          |  |                      |       |                      |  
|Total                     |  | $                    | 195.7 |                      | $
|                          |  |                      |       |                      |  



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VARIAN, INC. AND SUBSIDIARY COMPANIES



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





Note
13.    Recent Accounting Pronouncements



In August 2001, the FASB issued FAS 143, Accounting for Asset Retirement Obligations. FAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. FAS 143 applies to all entities. The adoption of FAS 143 in the first quarter of fiscal year 2003 did not have a significant impact on the Companys financial condition or results of operations.



In October 2001, the FASB issued FAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and portions of Accounting Principles Board
Opinion No. (APB) 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. While FAS 144 carries
forward many of the provisions of FAS 121 and APB 30, some of the key differences in the new standard are that goodwill is excluded from its scope, assets to be abandoned will be viewed as held for use and amortized over their remaining service
period, and the standard broadens the presentation of discontinued operations. The adoption of FAS 144 in the first quarter of fiscal year 2003 did not have a significant impact on the Companys financial condition or results of operations.



In July 2002, the FASB issued FAS 146,
Accounting for Exit or Disposal Activities. FAS 146 addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to
the guidance set forth in Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).
The scope of FAS 146 includes costs related to terminating a contract that is not a capital lease, costs to consolidate facilities or relocate employees, and certain termination benefits provided to employees who are involuntarily terminated. FAS
146 is effective for exit or disposal activities initiated after December 31, 2002. The Company does not expect the adoption of FAS 146 in the second quarter of fiscal year 2003 to have a significant impact on its financial condition or results of
operations.



In November 2002, the FASB issued
Interpretation No. (FIN) 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission
of FASB Interpretation No. 34. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit and warranty obligations. It also clarifies that at the time a company issues a
guarantee, a company must recognize an initial liability for the fair value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The provisions of FIN 45 relating to
initial recognition and measurement must be applied on a prospective basis to guarantees issued or modified after December 31, 2002. The Company does not expect the adoption of the initial recognition and measurement provisions in the second quarter
of fiscal year 2003 to have a significant impact on its financial condition or results of operations. The disclosure requirements of FIN 45, which are effective for both interim and annual periods, were adopted by the Company in the first quarter of
fiscal year 2003.



In November 2002, the
FASBs Emerging Issues Task Force finalized EITF Issue No. 00-21 (EITF 00-21), Revenue Arrangements with Multiple Deliverables. EITF 00-21 addresses how to determine whether an arrangement involving multiple deliverables
contains more than one unit of accounting. EITF 00-21 also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement. However, it does not address when the criteria for revenue
recognition are met or provide guidance on the appropriate revenue recognition convention for a given unit of accounting. EITF 00-21



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is effective for all revenue arrangements entered into in fiscal periods beginning after June 15, 2003, and early application is permitted.
Upon adoption, entities may elect to either apply EITF 00-21 prospectively or report the change in accounting as a cumulative-effect adjustment. The Company has not yet determined the effect the adoption of EITF 00-21 will have on its financial
condition or results of operations.



In December
2002, the FASB issued FAS 148, Accounting for Stock-Based CompensationTransition and Disclosurean Amendment of FAS 123. FAS 148 provides additional transition guidance for those entities that elect to voluntarily adopt the
accounting provisions of FAS 123, Accounting for Stock-Based Compensation. Since the Company intends to continue to apply the intrinsic value method of accounting for stock-based compensation, the adoption of FAS 148 will not have an effect
on its financial condition or results of operations. However, the Company will provide the additional disclosures required by FAS 148 beginning in the second quarter of fiscal year 2003.



Note 14.    Subsequent Event



Subsequent to December 27, 2002, the Company acquired the non-clinical drugs of abuse testing business (the
DAT Business) of Roche Diagnostics Corporation for approximately $22 million in cash. The DAT Business specializes in on-site, single-use products for rapidly detecting drugs of abuse in human bodily fluids, including several
products already manufactured by the Company. As a result of this acquisition, the Company added the DAT Business sales and distribution capabilities and certain intellectual property to the Companys existing consumables business.



The purchase price paid for the DAT Business is
subject to adjustment pending the completion of certain activities relating to the closing balance sheet. The Company expects to complete these activities during the second quarter of fiscal year 2003, at which time the final purchase price will be
established and allocated to acquired assets and liabilities including goodwill and identified intangible assets.



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



Until April 2, 1999, the business of Varian, Inc. (the
Company) was operated as the Instruments business (IB) of Varian Associates, Inc. (VAI). IB included the business units that designed, developed, manufactured, sold, and serviced scientific instruments and vacuum
technologies, and a business unit that provided contract electronics manufacturing services. VAI contributed IB to the Company; then on April 2, 1999, VAI distributed to the holders of record of VAI common stock on March 24, 1999 one share of common
stock of the Company for each share of VAI common stock outstanding on April 2, 1999 (the Distribution). At the same time, VAI contributed its Semiconductor Equipment business to Varian Semiconductor Equipment Associates, Inc.
(VSEA) and distributed to the holders of record of VAI common stock on March 24, 1999 one share of common stock of VSEA for each share of VAI common stock outstanding on April 2, 1999. VAI retained its Health Care Systems business and
changed its name to Varian Medical Systems, Inc. (VMS) effective as of April 3, 1999. These transactions were accomplished under the terms of an Amended and Restated Distribution Agreement dated as of January 14, 1999 by and among the
Company, VAI, and VSEA (the Distribution Agreement). For purposes of providing an orderly transition and to define certain ongoing relationships between and among the Company, VMS, and VSEA after the Distribution, the Company, VMS, and
VSEA also entered into certain other agreements which include an Employee Benefits Allocation Agreement, an Intellectual Property Agreement, and a Tax Sharing Agreement.



The Companys fiscal years reported are the 52- or 53-week periods ending on the Friday nearest
September 30. Fiscal year 2003 will comprise the 53-week period ending October 3, 2003, and fiscal year 2002 was comprised of the 52-week period ended September 27, 2002. The fiscal quarters ended December 27, 2002 and December 28, 2001 each
comprised 13 weeks.



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 managements current expectations, estimates, and
projections, and that reflect managements beliefs and assumptions based upon information available to management 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.



We caution investors that forward-looking
statements are only predictions, based upon our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to
predict. Our actual results, performance, or achievements could differ materially from those expressed or implied by the forward-looking statements. Some of the important factors that could cause our results to differ are discussed below under the
heading Risk Factors. We encourage you to read that section carefully. Other risks include: new product development, commercialization, performance, and acceptance; continued growth in sales into life science applications; the timing of
shipments, installations, and the recognition of revenues on leading-edge NMR systems; renewed demand for vacuum products and contract electronics manufacturing; competitive products and pricing; economic conditions in the Companys product and
geographic markets; continued and timely delivery of key raw materials and components by suppliers; foreign currency fluctuations that could adversely impact revenue growth and earnings; sustained or improved market investment in capital equipment;
the ability to successfully integrate acquired businesses; customers that operate in cyclical industries; government funding for research; and other risks detailed from time to time in the Companys filings with the Securities and Exchange
Commission (the SEC). You should carefully consider those risks, in addition to the other information in this Report and in our other filings with the SEC, before deciding to invest in our stock or to maintain or change your investment.
We undertake no obligation to revise or update any forward-looking statement.



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Results of Operations



First Quarter of Fiscal Year 2003
Compared to First Quarter of Fiscal Year 2002



Sales.    Sales were $195.7 million in the first quarter of fiscal year 2003, an increase of 6.2% from sales of $184.2 million in the first quarter of fiscal year 2002. Sales by the Scientific Instruments,
Vacuum Technologies, and Electronics Manufacturing segments increased by 6.4%, 11.1%, and 2.6%, respectively.



Geographically, sales in North America of $110.0 million, Europe of $57.3 million, and the rest of the world of $28.4 million in the first
quarter of fiscal year 2003 represented increases of 5.6%, 6.0%, and 9.5%, respectively, as compared to the first quarter of fiscal year 2002. The increase in North America primarily resulted from increased Vacuum Technologies sales and Scientific
Instruments acquisition of ANSYS Technologies, Inc. (ANSYS) in the second quarter of fiscal year 2002. The increase in Europe was due to stronger sales of Scientific Instruments. The increase in the rest of the world was primarily
driven by growth in Scientific Instruments sales into the Pacific Rim, partially offset by lower sales into Latin America.



Gross Profit.    Gross profit was $76.4 million (representing 39.0% of sales) in the first quarter of fiscal
year 2003, compared to $69.7 million (representing 37.8% of sales) in the first quarter of fiscal year 2002. The increase in gross profit percentage was driven primarily by higher Electronics Manufacturing gross profit margins as a result of
improved operational efficiencies and lower new customer start-up costs in the first quarter of fiscal year 2003, as well as lower Vacuum Technologies gross profit margins in the first quarter of the prior fiscal year due to the negative impact of
decreased demand on cost of sales.



Sales and
Marketing.    Sales and marketing expenses were $33.7 million (representing 17.2% of sales) in the first quarter of fiscal year 2003, compared to $30.9 million (representing 16.8% of sales) in the first quarter of fiscal year
2002. The $2.8 million increase in sales and marketing expenses resulted primarily from the acquisition of ANSYS in the second quarter of fiscal year 2002 and the impact of the weaker U.S. dollar in the first quarter of fiscal year 2003.



Research and
Development.    Research and development expenses were $10.9 million (representing 5.6% of sales) in the first quarter of fiscal year 2003, compared to $9.0 million (representing 4.9% of sales) in the first quarter of fiscal
year 2002. As a percentage of sales, research and development expenses increased from the prior-year quarter primarily because the Company continued to increase its focus within the Scientific Instruments and Vacuum Technologies segments on new
product development with an emphasis on life science applications. The Company expects that, as a percentage of sales, research and development expenses will continue at these higher levels for fiscal year 2003.



General and
Administrative.    General and administrative expenses were $11.6 million (representing 5.9% of sales) in the first quarter of fiscal year 2003, compared to $9.8 million (representing 5.3% of sales) in the first quarter of
fiscal year 2002. The increase in general and administrative expenses resulted primarily from restructuring charges of $2.0 million in the first quarter of fiscal year 2003. These charges consisted mainly of employee severance-related costs to
realign resources in the field offices of the Scientific Instruments segment to better focus on life science applications, and costs to close a field office in Latin America.



Net Interest Expense.    Net interest expense was $0.4 million (representing 0.2%
of sales) in the first quarter of fiscal year 2003, compared to $0.3 million (representing 0.2% of sales) in the first quarter of fiscal year 2002.



Taxes on Earnings.    The effective income tax rate was 36.0% for both the first quarter of fiscal year 2003
and the first quarter of fiscal year 2002.



Net Earnings.    Net earnings for the first quarter of fiscal year 2003 were $12.7 million ($0.36 net earnings per diluted share), compared to $12.5 million ($0.36 net earnings per diluted share) in the
first quarter of fiscal year 2002. Net earnings for the first quarter of fiscal year 2003 reflect the impact of $2.0 million in pretax



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restructuring charges ($1.3 million net earnings or $0.04 net earnings per diluted share) recorded during the period. The negative impact of
these restructuring charges in the first quarter of fiscal year 2003 was offset by increased profitability in the Vacuum Technologies and Electronics Manufacturing segments.



Segments.    Scientific Instruments sales of $124.3 million in the first quarter
of fiscal year 2003 increased 6.4% over the first quarter of fiscal year 2002 sales of $116.9 million. The growth in sales was primarily driven by the ANSYS acquisition in the second quarter of fiscal year 2002 and increased sales of certain
products selling into life science applications. Including $1.6 million in pretax restructuring charges, earnings from operations in the first quarter of fiscal year 2003 of $13.1 million (10.5% of sales) decreased from $14.9 million (12.8% of
sales) in the first quarter of fiscal year 2002. Excluding the restructuring charges, Scientific Instruments operating earnings were $14.7 million (11.8% of sales). The decrease in operating earnings as a percentage of sales resulted primarily from
increased research and development spending in the first quarter of fiscal year 2003. For fiscal year 2003, high single-digit growth is expected for Scientific Instruments sales, with good growth in sales for life science applications and modest, if
any, growth in sales for chemical analysis applications. Operating profit margins are expected to move toward 12% as fiscal year 2003 progresses.



Vacuum Technologies sales of $29.4 million in the first quarter of fiscal year 2003 increased 11.1% from the first quarter of fiscal year
2002 sales of $26.4 million. The sales increase resulted primarily from higher sales of products into life science applications. Earnings from operations in the first quarter of fiscal year 2003 of $4.5 million (15.2% of sales) were up from
$3.8 million (14.5% of sales) in the first quarter of fiscal year 2002. The higher earnings were primarily attributable to lower gross profit margins in the first quarter of the prior fiscal year due to the negative impact of decreased demand on
cost of sales. Single-digit growth in Vacuum Technologies sales is expected for fiscal year 2003. Operating profit margins for fiscal year 2003 are expected to be in the mid-teens.



Electronics Manufacturing sales in the first quarter of fiscal year 2003 of $42.0 million increased 2.6% from
$40.9 million in the first quarter of fiscal year 2002. The increase in sales was primarily due to the negative impact of order delays after September 11 on sales in the first quarter of fiscal year 2002. Earnings from operations in the first
quarter of fiscal year 2003 of $4.7 million (11.2% of sales) increased from $3.1 million (7.7% of sales) in the first quarter of fiscal year 2002, primarily as a result of operational efficiencies and lower new customer start-up costs. Single-digit
growth in Electronics Manufacturing sales is expected for fiscal year 2003. Operating profit margins for fiscal year 2003 are expected to be in the high single digits.



With respect to consolidated results for fiscal year 2003, we expect high single-digit sales growth, with an
operating profit percentage similar to fiscal year 2002. Our current expectations for fiscal year 2003 assume that there is no deterioration in economic conditions in the markets in which we operate.



Liquidity and Capital Resources



The Company generated $28.6 million of cash from operating
activities in the first quarter of fiscal year 2003, which compares to $20.1 million in the first quarter of fiscal year 2002. The increase in cash from operating activities resulted from stronger collection of accounts receivable, partially offset
by higher inventory requirements.



The Company
used $4.6 million of cash for investing activities in the first quarter of fiscal year 2003, which compares to $9.0 million in the first quarter of fiscal year 2002. The decrease in cash used for investing activities in the first quarter of fiscal
year 2003 was primarily due to two acquisitions completed during the first quarter of the prior fiscal year.



The Company used $7.9 million of cash for financing activities in the first quarter of fiscal year 2003, which compares to $1.0 million
used for financing activities in the first quarter of fiscal year 2002. The increase in cash used for financing activities in the first quarter of fiscal year 2003 was primarily due to the repurchase of common stock, partially offset by a reduction
in debt repayments.



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During fiscal
year 2002, the Company established a three-year unsecured revolving bank credit facility in the amount of $50.0 million for working capital purposes. No amounts were outstanding under this credit facility as of December 27, 2002. Borrowings under
this credit facility bear interest at rates of LIBOR plus 1.25% to 2.0% depending on certain financial ratios of the Company at the time of borrowing. This credit facility contains certain customary covenants that limit future borrowings of the
Company and require the maintenance by the Company of certain levels of financial performance. The Company was in compliance with all such covenants and requirements as of December 27, 2002.



As of December 27, 2002, the Company and its subsidiaries had
$55.1 million in uncommitted and unsecured credit facilities for working capital purposes with interest rates to be established at the time of borrowing. No borrowings were outstanding under these credit facilities as of December 27, 2002. All of
these credit facilities contain certain conditions and events of default customary for such facilities, with which the Company was in compliance. Of the $55.1 million in uncommitted and unsecured credit facilities, a total of $33.7 million was
limited for use by, or in favor of, certain subsidiaries. As of December 27, 2002, a total of $15.5 million of the $33.7 million was being utilized in the form of bank guarantees or short-term standby letters of credit. These guarantees and letters
of credit related primarily to advance payments or deposits made to the Companys subsidiaries by customers for which separate liabilities were recorded in the Unaudited Consolidated Condensed Financial Statements at December 27, 2002. No
amounts had been drawn by beneficiaries under these or any other outstanding guarantees or letters of credit as of that date.



As of December 27, 2002, the Company had $36.3 million in term loans outstanding compared to $37.5 million at September 27, 2002. As
of both December 27, 2002 and September 27, 2002, fixed interest rates on the term loans ranged from 6.7% to 7.2%. The weighted-average interest rate on the term loans was 6.9% at both December 27, 2002 and September 27, 2002. The term loans contain
certain covenants that limit future borrowings and the payment of cash dividends and require the maintenance of certain levels of working capital and operating results. The Company was in compliance with all restrictive covenants of the term loan
agreements during the first quarter of fiscal year 2003. The Company also had other long-term notes payable of $3.9 million as of December 27, 2002 with a weighted-average interest rate of 0.8% and $3.5 million as of September 27, 2002 with a
weighted-average interest rate of 0.9%.



Future
principal payments on long-term debt outstanding on December 27, 2002 were $2.1 million, $2.8 million, $3.9 million, $3.9 million, $2.5 million, $6.2 million, and $18.8 million during the nine months ending October 3, 2003 and fiscal years
2004, 2005, 2006, 2007, 2008, and thereafter, respectively.



The Distribution Agreement provides that the Company is responsible for certain litigation to which VAI was a party, and further provides that the Company 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 below under the heading Risk FactorsEnvironmental Matters).



In connection with certain acquisitions, the Company has
accrued but not yet paid certain purchase price amounts which have been held back to secure the sellers indemnification obligations. These holdback amounts, which are due to be paid at various times through fiscal year
2004 (net of any indemnification claims), totaled approximately $1.0 million at December 27, 2002. In addition to the holdback payments, the Company is also obligated to pay additional cash purchase price amounts in the event that
contingent financial or operational milestones are met by the acquired businesses. As of December 27, 2002, up to a maximum of $15.4 million could be payable through fiscal year 2006 under these contingent consideration arrangements. Any
contingent payments made will be recorded as additional goodwill at the time they are earned.



The Companys 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 industry and global economies.
Although the Companys cash requirements will fluctuate based on the timing and extent of these factors, management believes that cash generated from operations, together with the Companys borrowing capability, will be sufficient to
satisfy commitments for capital expenditures and other cash requirements for the next 12 months.



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Contractual Obligations and
Other Commercial Commitments



The following
table summarizes future principal payments on outstanding long-term debt and minimum rentals due for certain facilities and other leased assets under long-term, non-cancelable operating leases as of December 27, 2002:



|                                           |  | Nine Months Ending Oct. 3, 2003 |       | Fiscal
Years |      |      
|------------------------------------------ |  | ------------------------------- | ----- | ------------ | ---- | -----
|                                           |  |                                 | 2004  |              | 2005 |      
|(in thousands)                             |  |                                 |       |              |      |      
|Long-term debt (including current portion) |  | $                               | 2,132 |              | $    | 2,774
|Operating leases                           |  |                                 | 4,875 |              |      | 4,842
|                                           |  |                                 |       |              |      |      
|Total contractual cash obligations         |  | $                               | 7,007 |              | $    | 7,616
|                                           |  |                                 |       |              |      |      



In
addition to the above, the Company had cancelable commitments to purchase certain superconducting magnets intended for use with leading-edge NMR systems totaling approximately $38.3 million, net of deposits paid, as of December 27, 2002. In the
event that these commitments are canceled for reasons other than the suppliers default, the Company would be responsible for reimbursement of actual costs incurred by the supplier.



As of December 27, 2002, the Company 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 $15.4 million related to acquisitions as discussed under Liquidity and Capital Resources above, the
specific timing and amounts of which are not currently determinable.



Recent Accounting Pronouncements



In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. (FAS) 143, Accounting for Asset Retirement Obligations. FAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. FAS 143 applies to all entities. The adoption of FAS 143 in the first quarter of fiscal year 2003 did
not have a significant impact on the Companys financial condition or results of operations.



In October 2001, the FASB issued FAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes FAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and portions of Accounting Principles Board Opinion No. (APB) 30, Reporting the Results of OperationsReporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. While FAS 144 carries forward many of the provisions of FAS 121 and APB 30, some of the key differences in the new standard are
that goodwill is excluded from its scope, assets to be abandoned will be viewed as held for use and amortized over their remaining service period, and the standard broadens the presentation of discontinued operations. The adoption of FAS 144 in the
first quarter of fiscal year 2003 did not have a significant impact on the Companys financial condition or results of operations.



In July 2002, the FASB issued FAS 146, Accounting for Exit or Disposal Activities. FAS 146 addresses the recognition, measurement,
and reporting of costs associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance set forth in Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The scope of FAS 146 includes costs related to terminating a contract that is not a capital lease,
costs to consolidate facilities or relocate



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employees, and certain termination benefits provided to employees who are involuntarily terminated. FAS 146 is effective for exit or disposal
activities initiated after December 31, 2002. The Company does not expect the adoption of FAS 146 in the second quarter of fiscal year 2003 to have a significant impact on its financial condition or results of operations.



In November 2002, the FASB issued Interpretation No.
(FIN) 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB
Interpretation No. 34. FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit and warranty obligations. It also clarifies that at the time a company issues a
guarantee, a company must recognize an initial liability for the fair value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The provisions of FIN 45 relating to
initial recognition and measurement must be applied on a prospective basis to guarantees issued or modified after December 31, 2002. The Company does not expect the adoption of the initial recognition and measurement provisions in the second quarter
of fiscal year 2003 to have a significant impact on its financial condition or results of operations. The disclosure requirements of FIN 45, which are effective for both interim and annual periods, were adopted by the Company in the first quarter of
fiscal year 2003.



In November 2002, the
FASBs Emerging Issues Task Force finalized EITF Issue No. 00-21 (EITF 00-21), Revenue Arrangements with Multiple Deliverables. EITF 00-21 addresses how to determine whether an arrangement involving multiple deliverables
contains more than one unit of accounting. EITF 00-21 also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement. However, it does not address when the criteria for revenue
recognition are met or provide guidance on the appropriate revenue recognition convention for a given unit of accounting. EITF 00-21 is effective for all revenue arrangements entered into in fiscal periods beginning after June 15, 2003, and early
application is permitted. Upon adoption, entities may elect to either apply the EITF 00-21 prospectively or report the change in accounting as a cumulative-effect adjustment. The Company has not yet determined the effect the adoption of EITF 00-21
will have on its financial condition or results of operations.



In December 2002, the FASB issued FAS 148, Accounting for Stock-Based CompensationTransition and Disclosurean Amendment of FAS 123. FAS 148 provides additional transition guidance for those entities that elect to
voluntarily adopt the accounting provisions of FAS 123, Accounting for Stock-Based Compensation. Since the Company intends to continue to apply the intrinsic value method of accounting for stock-based compensation, the adoption of FAS 148
will not have an effect on its financial condition or results of operations. However, the Company will provide the additional disclosures required by FAS 148 beginning in the second quarter of fiscal year 2003.



Risk Factors



Customer Demand.    Demand for the
Companys products depends upon, among other factors, the level of capital expenditures by current and prospective customers, the rate of economic growth in the markets in which we compete, and the competitiveness of our products and services.
Changes in any of these factors could have an adverse effect on the Companys financial condition or results of operations.



In the case of our Scientific Instruments and Vacuum Technologies segments, we must continue to assess and predict customer needs,
regulatory requirements, and evolving technologies. We must develop new products, including enhancements to existing products, new services, and new applications, successfully commercialize, manufacture, market, and sell these products, and protect
our intellectual property in these products. If we are unsuccessful in these areas, our financial condition or results of operations could be adversely affected.



In the case of the Companys Electronics Manufacturing segment, we must respond quickly to our
customers changing requirements. Customers may change, delay, or cancel orders for many reasons, including lack of success of their products or business strategies and economic conditions in the markets they serve. In



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addition, some customers, including start-up companies, have limited product histories and financial resources, which make them riskier
customers for us. We must determine, based on our judgment and our customers estimates of their future requirements, what levels of business we will accept, what start-up costs to incur for new customers or products, production schedules,
component procurement commitments, personnel needs, and other resource requirements. All of these decisions require predictions about the future and judgments that could be wrong. Cancellations, reductions, or delays in orders by a significant
customer or group of customers, or their inability to meet financial commitments with respect to orders or shipments, could have an adverse impact on the Companys financial condition or results of operations.



Variability of Operating
Results.    The Company experiences some cyclical patterns in sales of its products. Generally, sales and earnings in the first quarter of the Companys fiscal year are lower when compared to the preceding fourth fiscal
quarter, primarily because there are fewer working days in our first fiscal quarter (October to December) and many customers defer December deliveries until the next calendar year, our second fiscal quarter. Our fourth fiscal quarter sales and
earnings are often the highest in the fiscal year compared to the other three quarters, primarily because many customers spend budgeted money before their own fiscal years end. This cyclical pattern can be influenced by other factors, including
general economic conditions, acquisitions, and new product introductions. Consequently, our results of operations may fluctuate significantly from quarter to quarter.



For most of the Companys products, we operate on a short backlog, as short as a few days for some
products and less than a fiscal quarter for most others. We also experience significant shipments in the last month of each quarter, in part because of how our customers place orders and schedule shipments. This can make it difficult for us to
forecast our results of operations.



Certain of
our leading-edge NMR systems, probes, and components (together accounting for less than 10% of the Companys revenues and operating profits) sell for high prices and on long lead-times. These systems and components are complex; require
development of new technologies and, therefore, significant research and development resources; are often intended for evolving leading-edge research applications; often have customer-specific features, custom capabilities, and specific acceptance
criteria; and, in the case of NMR systems, require superconducting magnets that can be difficult to manufacture. These superconducting magnets are not manufactured by us, so our ability to ship, install and obtain customer acceptance of our
leading-edge NMR systems is dependent upon the superconducting magnet suppliers timely development, delivery, and installation of magnets that perform to customer specifications. If we are unable to meet these challenges, it could have an
adverse effect on the Companys financial condition or results of operations. In addition, all of these factors can make it difficult for us to forecast shipment, installation, and acceptance of leading-edge NMR systems and probes, which in
turn can make it difficult for us to forecast the timing of revenue recognition and the achieved gross profit margin on these systems.



Competition.    The industries in which the Company operatesscientific instruments, vacuum technologies,
and electronics manufacturingare highly competitive. In each of these industries, we compete against many U.S. and non-U.S. companies, most with global operations. Some of our competitors have greater financial resources than we have, which
may enable them to respond more quickly to new or emerging technologies, take advantage of acquisition opportunities, compete on price, or devote greater resources to research and development, engineering, manufacturing, marketing, sales, or
managerial activities. Others have greater name recognition and geographic and market presence or lower cost structures than the Company. In addition, weaker demand and excess capacity in our industries could cause greater price competition as our
competitors seek to maintain sales volumes and market share. Additionally, in the case of electronics manufacturing, current and prospective customers continually evaluate the merits of manufacturing products internally; there is substantial excess
manufacturing capacity in the industry; certain competitors manufacture or are seeking to manufacture outside the U.S. where there can be significant cost advantages, and certain customers may be willing to move to off-shore
manufacturing for cost reasons; larger competitors might have greater direct buying power from suppliers; and electronics manufacturing processes are generally not subject to significant intellectual property protection. For all of the foregoing
reasons, competition could result in lower



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revenues due to lost sales or price reductions, lower margins, and loss of market share, which could have an adverse effect on the
Companys financial condition or results of operations.



Key Suppliers.    Some items purchased by the Company for the manufacture of its products, including superconducting magnets used in NMR systems, are purchased from limited or single sources of supply. The
loss of a key supplier or the inability to obtain certain key raw materials or components could cause delays or reductions in shipments of our products or increase our costs, which could have an adverse effect on the Companys financial
condition or results of operations.



We have
experienced and could again experience delivery delays in superconducting magnets used in NMR systems, which has caused and could again cause delays in our product shipments. In addition, end-users of our NMR systems require helium to operate those
systems; shortages of helium could result in higher helium prices, and thus higher operating costs for NMR systems, which could impact demand for those systems.



The Companys Electronics Manufacturing segment uses electronic components in the manufacture of its
products. These components can be more or less difficult and expensive to obtain, depending on the overall demand for these components as a result of general economic cycles or other factors. Consequently, the Electronics Manufacturing
segments results of operations may fluctuate over time.



Business Interruption.    The Companys facilities, operations, and systems could be impacted by fire, flood, terrorism, or other natural or man-made disasters. In particular, we have significant
facilities in areas prone to earthquakes, such as our production facilities and headquarters in California. Due to the limited availability, broad exclusions, and prohibitive costs, we do not have insurance policies that would cover losses resulting
from an earthquake. If any of our facilities or surrounding areas were to be significantly damaged in an earthquake, it could disrupt our operations, delay shipments, and cause us to incur significant repair or replacement costs, which could have an
adverse effect on the Companys financial condition or results of operations.



The Companys employees based in certain foreign countries are subject to collective bargaining agreements. Of these, the Companys employees in Australia are subject to a collective
bargaining agreement that will need to be renewed in April 2003. A work stoppage, strike, or other labor action at this or other facilities of the Company could have an adverse effect on the Companys financial condition or results of
operations.



Intellectual
Property.    The Companys success depends on its intellectual property. We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality agreements, and licensing arrangements to establish and
protect that intellectual property, but these protections might not be available in all countries, might not be enforceable, might not fully protect our intellectual property, and might not provide meaningful competitive advantages. Moreover, we
might be required to spend significant resources to police and enforce our intellectual property rights, and we might not detect infringements of those intellectual property rights. If we fail to protect our intellectual property and enforce our
intellectual property rights, our competitive position could suffer, which could have an adverse effect on the Companys financial condition or results of operations.



Third parties might claim that the Company infringes their intellectual property rights, and we may be
unaware of intellectual property rights that we are infringing. Any litigation regarding intellectual property of others could be costly and could divert personnel and resources from our operations. Claims of intellectual property infringement might
also require us to develop non-infringing alternatives or enter into royalty-bearing license agreements. We might also be required to pay damages or be enjoined from developing, manufacturing, or selling infringing products. We sometimes rely on
licenses to avoid these risks, but we cannot be assured that these licenses will be available in the future or on favorable terms. Failure to protect against these risks could have an adverse effect on the Companys financial condition or
results of operations.



Acquisitions.    The Company has acquired companies and operations, and intends to acquire companies and operations in the future, as part of its growth strategy. Acquisitions must be carefully evaluated
and negotiated if



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they are to be successful. Once completed, acquired operations must be carefully integrated to realize expected synergies, efficiencies, and
financial results. Some of the challenges in doing this include retaining key employees, managing operations in new geographic areas, retaining key customers, and managing transaction costs. All of this must be done without diverting management and
other resources from other operations and activities. Failure to successfully evaluate, negotiate, and integrate acquisitions could have an adverse effect on the Companys financial condition or results of operations.



Foreign Operations and Currency Exchange
Rates.    A significant portion of the Companys sales, manufacturing activities, and employees are outside of the United States. As a result, the Company is subject to various risks, including the following: duties,
tariffs, and taxes; restrictions on currency conversions, fund transfers, or profit repatriations; import, export, and other trade restrictions; protective labor regulations and union contracts; compliance with local laws and regulations; travel and
transportation difficulties; and adverse developments in political or economic environments in countries where we operate. Additionally, the U.S. dollar value of the Companys sales varies with currency exchange rate fluctuations, although the
Companys manufacturing operations in other countries often act as a natural hedge against the profitability impact of foreign currency exchange fluctuations relative to the U.S. dollar. These risks could have an adverse effect on the
Companys financial condition or results of operations.



Key Personnel.    The Companys success depends upon the efforts and abilities of key personnel, including research and development, engineering, manufacturing, finance, administrative, marketing,
sales, and management personnel. The availability of qualified personnel can vary significantly based on factors such as the strength of the general economy. However, even in weak economic periods, there is still intense competition for personnel
with certain expertise in the geographic areas where we compete for personnel. In addition, certain employees have significant institutional and proprietary technical knowledge, which could be difficult to quickly replace. Failure to attract and
retain qualified personnel, who generally do not have employment agreements or post-employment non-competition agreements, could have an adverse effect on the Companys financial condition or results of operations.



Environmental Matters.    The
Companys operations are subject to various foreign, federal, state, and local laws 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.



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 under the direction of, or in consultation with,
foreign, federal, state, and/or local agencies at certain current VMS or former VAI facilities. Under the terms of the Distribution, 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 tax benefits recognized or realized by VMS for such costs).



For certain of these sites and facilities, various uncertainties make it difficult to assess the likelihood and scope of further
environmental-related activities or to estimate the future costs of such activities if undertaken. As of December 27, 2002, 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 $1.8 million to $4.8 million (without discounting to present value). The time frame over which these costs are expected to be incurred varies with each site and facility, ranging up to approximately
30 years as of December 27, 2002. 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 $1.8 million as of
December 27, 2002.



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As to other
sites and facilities, sufficient knowledge has been gained to be able to better estimate the scope and costs of future environmental-related activities. As of December 27, 2002, it was estimated that the Companys share of the future exposure
for environmental-related costs for these sites and facilities ranged in the aggregate from $6.2 million to $13.6 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 30 years as of December 27, 2002. As to each of these sites and facilities, it was determined that a particular amount within the range of 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 $7.5 million at December 27, 2002. The Company therefore had an
accrual of $5.0 million as of December 27, 2002, 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 $1.8 million described in the
preceding paragraph.



The foregoing amounts are
only estimates of anticipated future environmental-related costs, and the amounts actually spent in the years indicated may be greater or less than such estimates. The aggregate range of cost estimates reflects various uncertainties inherent in many
environmental investigation, monitoring, and remediation activities and the large number of sites where such investigation, monitoring, and remediation activities are being undertaken.



An insurance company agreed to pay a portion of certain of VAIs (now VMS) future
environmental-related costs for which the Company has an indemnity obligation, and the Company therefore has a $1.3 million receivable in other assets as of December 27, 2002 for the Companys share of such recovery. The Company has not reduced
any environmental-related liability in anticipation of recoveries from third parties.



Management believes that the Companys 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, management 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.



Governmental Regulations.    The
Companys businesses are subject to many governmental regulations in the U.S. and other countries, including with respect to protection of the environment, employee health and safety, labor matters, product safety, medical devices, import,
export, competition, and sales to governmental entities. These regulations are complex and change frequently. We incur significant costs to comply with governmental regulations, and failure to comply could result in suspension of or restrictions on
our operations, product recalls, fines and other civil and criminal penalties, private party litigation, and damage to our reputation, which could have an adverse effect on the Companys financial condition or results of operations.



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



Foreign Currency Exchange Risk



The Company typically hedges its foreign currency exposures associated with certain assets and liabilities
denominated in non-functional currencies and with certain forecasted foreign currency cash flows. The success of the Companys hedging activities depends on its ability to forecast transaction activity in various currencies. To the extent that
these forecasts are overstated or understated during periods of currency volatility, the Company could experience unanticipated currency gains or losses. However, the Company believes that in most cases gains or losses would be substantially offset
by losses or gains from the related foreign exchange forward contracts. As a result, the effect of an immediate 10% change in exchange rates would not be material to the Companys



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financial condition or results of operations. The Companys foreign exchange forward contracts generally range from one to 12 months in
original maturity.



At December 27, 2002, forward
contracts to sell Japanese yen having an aggregate notional value of $6.9 million were designated as cash flow hedges of forecasted sale transactions. These contracts were deemed to be highly effective, and as a result, a loss of $0.1 million
(net of tax) on these contracts is included in accumulated other comprehensive loss in stockholders equity. During the fiscal quarter ended December 27, 2002, a loss of $0.1 million from hedge ineffectiveness was recognized and included in
general and administrative expenses. A summary of all forward exchange contracts that were outstanding as of December 27, 2002 follows:



|                  |  | Notional Value Sold |        | Notional Value Purchased
|----------------- |  | ------------------- | ------ | ------------------------
|(in thousands)    |  |                     |        |                         
|Euro              |  | $                   |       |                         
|Australian dollar |  |                     |       |                         
|Japanese yen      |  |                     | 11,507 |                         
|Canadian dollar   |  |                     | 5,336  |                         
|British pound     |  |                     | 5,066  |                         
|Swedish krona     |  |                     |       |                         
|                  |  |                     |        |                         
|                  |  | $                   | 21,909 |                         
|                  |  |                     |        |                         



Interest Rate Risk



The Company has no material exposure to
market risk for changes in interest rates. The Company invests 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 the Companys financial condition or
results of operations. The Company primarily enters into debt obligations to support general corporate purposes, including working capital requirements, capital expenditures, and acquisitions. At December 27, 2002, the Companys debt
obligations had fixed interest rates.



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



Although payments under certain of the Companys
operating leases for its facilities are tied to market indices, the Company is not exposed to material interest rate risk associated with its operating leases.



Debt Obligations



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



|                                           |  | Nine Months Ending Oct. 3, 2003 |       |   | Fiscal
Years |      |       |   |     
|------------------------------------------ |  | ------------------------------- | ----- | - | ------------ | ---- | ----- | - | ----
|                                           |  |                                 | 2004  |   |              | 2005 |       |   | 2006
|(dollars in thousands)                     |  |                                 |       |   |              |      |       |   |     
|Long-term debt (including current portion) |  | $                               | 2,132 |   |              | $    | 2,774 |   |     
|Average interest rate                      |  |                                 | 5.5   | % |              |      | 6.6   | % |     



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



Within the 90-day period prior to the filing of this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision
and with the participation of the Companys management, including the Chief Executive Officer (the CEO) and Chief Financial Officer (the CFO), of the effectiveness of the design and operation of the Companys
disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. There were no significant changes in the Companys internal controls or in
other factors that could significantly affect the disclosure controls subsequent to the date of that evaluation.



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PART II

OTHER INFORMATION



Item 6.    Exhibits and Reports on Form 8-K



(a)  Exhibits:



|10.19 |  | Change in Control Agreement, dated as of December 18, 2002, between Varian, Inc. and Martin
ODonoghue.                                                         
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|99.1  |  | Certification Pursuant to Section 1350 to Chapter 63 of Title 18 of the United States Code as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|     
|99.2  |  | Certification Pursuant to Section 1350 to Chapter 63 of Title 18 of the United States Code as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.



(b)  Reports on Form 8-K filed during the fiscal quarter ended December 27, 2002:



None.



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SIGNATURES



Pursuant to the requirements of Section 13
or 15(d) 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)By

/s/    G. EDWARD
MCCLAMMYG. Edward McClammy Senior Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer)




Date:    February 7, 2003



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CERTIFICATION



I, Allen J. Lauer, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Varian, Inc.;
| | -- |  | -------------------------------------------------------------------



| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made not misleading with respect to the period covered by this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date:    February 7, 2003



|/s/    ALLEN J.
LAUER                                           
|----------------------------------------------------------------
|Allen J. Lauer Chairman of the Board and Chief Executive
Officer



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CERTIFICATION



I, G. Edward McClammy, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Varian, Inc.;
| | -- |  | -------------------------------------------------------------------



| | 2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made not misleading with respect to the period covered by this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date:    February 7, 2003



|/s/    G. EDWARD
MCCLAMMY                                                      
|-------------------------------------------------------------------------------
|G. Edward McClammy Senior Vice President, Chief Financial Officer and Treasurer



29