<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                 --------------


                                    FORM 10-Q

(MARK ONE)

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

                                       OR

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

                 FOR THE TRANSITION PERIOD FROM  --------  TO  --------

                        COMMISSION FILE NUMBER 000-25393

                      ------------------------------------


                                  VARIAN, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                                    77-0501995
     (STATE OR OTHER JURISDICTION                         (IRS EMPLOYER
  OF INCORPORATION OR ORGANIZATION)                  IDENTIFICATION NUMBER)

 3120 HANSEN WAY, PALO ALTO, CALIFORNIA                    94304-1030
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                   (ZIP CODE)

                                 (650) 213-8000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

     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
April 28, 2000 was 32,141,527.

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<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>        <C>                                                                                              <C>
PART I.    FINANCIAL INFORMATION..........................................................................  3
Item 1.    Financial Statements...........................................................................  3
           Consolidated Statements of Earnings............................................................  3
           Consolidated Balance Sheets....................................................................  4
           Consolidated Condensed Statements of Cash Flows................................................  5
           Notes to the Consolidated Financial Statements.................................................  6
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 12
Item 3.    Quantitative and Qualitative Disclosure about Market Risk...................................... 18
PART II.   OTHER INFORMATION.............................................................................. 20
Item 4.    Submission of Matters to a Vote of Security Holders............................................ 20
Item 6.    Exhibits and Reports on Form 8-K............................................................... 20
</TABLE>


               RISK FACTORS RELATING TO FORWARD-LOOKING STATEMENTS

     This Quarterly  Report on Form 10-Q contains  "forward-looking"  statements
within the  meaning of the  Private  Securities  Litigation  Reform Act of 1995,
which   provides  a  "safe  harbor"  for  these  types  of   statements.   These
forward-looking  statements  are subject to risks and  uncertainties  that could
cause actual results of Varian,  Inc. (the "Company") to differ  materially from
management's  current  expectations.  Those  risks  and  uncertainties  include,
without limitation:  new product development and  commercialization;  demand and
acceptance  for  the  Company's  products;  competitive  products  and  pricing;
economic  conditions in the Company's  product and geographic  markets;  foreign
currency fluctuations;  market investment in capital equipment;  and other risks
detailed  from time to time in the  Company's  filings with the  Securities  and
Exchange Commission.


                                       2
<PAGE>


                                     PART I.
                              FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

                      VARIAN, INC. AND SUBSIDIARY COMPANIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                    (In thousands, except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                     QUARTER ENDED            SIX MONTHS ENDED
                                                                 -----------------------    ----------------------
                                                                 MAR. 31,      APR. 2,      MAR. 31,     APR. 2,
                                                                   2000          1999         2000         1999
                                                                 ----------    ---------    ---------    ---------
<S>                                                              <C>           <C>          <C>          <C>
SALES.......................................................     $ 177,310     $148,936     $337,262     $282,232
Cost of sales...............................................       109,820      101,712      207,919      182,378
                                                                 ----------    ---------    ---------    ---------
GROSS PROFIT................................................        67,490       47,224      129,343       99,854
                                                                 ----------    ---------    ---------    ---------

OPERATING EXPENSES
     Sales and marketing....................................        31,301       34,180       61,106       64,276
     Research and development...............................         8,549        9,277       15,531       16,440
     General and administrative.............................        10,679       10,889       21,016       18,727
     Restructuring..........................................            --       10,974           --       10,974
                                                                 ----------    ---------    ---------    ---------
     TOTAL OPERATING EXPENSES...............................        50,529       65,320       97,653      110,417
                                                                 ----------    ---------    ---------    ---------
OPERATING EARNINGS (LOSS)...................................        16,961      (18,096)      31,690      (10,563)
Interest expense (income), net..............................           553         (129)       1,244         (265)
                                                                 ----------    ---------    ---------    ---------
EARNINGS (LOSS) BEFORE INCOME TAXES.........................        16,408      (17,967)      30,446      (10,298)
Income tax expense (benefit)................................         6,259       (7,993)      11,874       (4,583)
                                                                 ----------    ---------    ---------    ---------
NET EARNINGS (LOSS).........................................     $  10,149     $ (9,974)    $ 18,572     $ (5,715)
                                                                 ==========    =========    =========    =========

NET EARNINGS (LOSS) PER SHARE:
     Basic..................................................     $    0.32     $  (0.33)    $   0.60     $  (0.19)
                                                                 ==========    =========    =========    =========
     Diluted................................................     $    0.30     $  (0.33)    $   0.56     $  (0.19)
                                                                 ==========    =========    =========    =========

SHARES USED IN PER SHARE CALCULATIONS:
     Basic..................................................        31,498       30,423       31,154       30,423
                                                                 ==========    =========    =========    =========
     Diluted................................................        33,770       30,587       33,232       30,587
                                                                 ==========    =========    =========    =========
</TABLE>







        See accompanying Notes to the Consolidated Financial Statements.

                                       3
<PAGE>


                      VARIAN, INC. AND SUBSIDIARY COMPANIES
                           CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and par value amounts)
<TABLE>
<CAPTION>

                                                                                           MAR. 31,      OCT. 1,
                                                                                             2000         1999
                                                                                           ---------    ----------
                                                                                           (UNAUDITED)
<S>                                                                                        <C>          <C>
ASSETS
CURRENT ASSETS
     Cash and cash equivalents.......................................................      $ 54,528     $  23,348
     Accounts receivable, net........................................................       152,845       151,437
     Inventories.....................................................................        92,401        66,634
     Deferred taxes..................................................................        25,368        25,508
     Other current assets............................................................         8,437         8,405
                                                                                           ---------    ----------
     TOTAL CURRENT ASSETS............................................................       333,579       275,332
PROPERTY, PLANT, AND EQUIPMENT, NET..................................................        77,246        83,654
OTHER ASSETS.........................................................................        66,321        66,090
                                                                                           ---------    ----------
TOTAL ASSETS.........................................................................      $477,146     $ 425,076
                                                                                           =========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Current portion of long-term debt...............................................      $  6,493     $   6,717
     Accounts payable................................................................        56,715        40,442
     Accrued liabilities.............................................................       128,753       116,128
                                                                                           ---------    ----------
     TOTAL CURRENT LIABILITIES.......................................................       191,961       163,287
LONG-TERM DEBT.......................................................................        47,931        51,221
DEFERRED TAXES.......................................................................         8,439         8,453
OTHER LIABILITIES....................................................................        10,561         7,453
                                                                                           ---------    ----------
TOTAL LIABILITIES....................................................................       258,892       230,414
                                                                                           ---------    ----------

CONTINGENCIES (NOTE 9)

STOCKHOLDERS' EQUITY
     Preferred stock--par value $.01, authorized--1,000,000 shares; issued--none.....            --            --
     Common stock--par value $.01, authorized--99,000,000 shares; issued and
       outstanding--32,148,879 shares at Mar. 31, 2000 and 30,563,094 at Oct. 1,
       1999..........................................................................       200,852       181,619
     Retained earnings...............................................................        31,615        13,043
     Other comprehensive income (loss)...............................................       (14,213)           --
                                                                                           ---------    ----------
     TOTAL STOCKHOLDERS' EQUITY......................................................       218,254       194,662
                                                                                           ---------    ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...........................................      $477,146     $ 425,076
                                                                                           =========    ==========
</TABLE>




        See accompanying Notes to the Consolidated Financial Statements.

                                       4
<PAGE>


                      VARIAN, INC. AND SUBSIDIARY COMPANIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                             SIX MONTHS ENDED
                                                                                           --------- --- --------
                                                                                           MAR. 31,      APR. 2,
                                                                                             2000         1999
                                                                                           ---------     --------
<S>                                                                                        <C>           <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES...........................................       $ 32,513      $ 8,584
                                                                                           ---------     --------

INVESTING ACTIVITIES
Purchase of property, plant, and equipment..........................................        (10,558)     (10,546)
Proceeds from sale of property, plant, and equipment................................            286           --
Purchase of businesses..............................................................         (7,095)          --
                                                                                           ---------     --------
NET CASH USED IN INVESTING ACTIVITIES...............................................        (17,367)     (10,546)
                                                                                           ---------     --------

FINANCING ACTIVITIES
Common stock option exercises.......................................................         21,752           --
Purchase of common stock............................................................         (2,548)
Net issuance/(payment) of debt......................................................         (3,337)          --
Net transfers from Varian Associates, Inc./Varian Medical Systems, Inc..............          1,095       14,792
                                                                                           --------     --------
NET CASH PROVIDED BY FINANCING ACTIVITIES...........................................         16,962       14,792
                                                                                           --------     --------
Effects of exchange rate changes on cash............................................           (928)        (737)
                                                                                           --------     --------
Net increase in cash and cash equivalents...........................................         31,180       12,093
Cash and cash equivalents at beginning of period....................................         23,348           --
                                                                                            --------     --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..........................................       $ 54,528      $12,093
                                                                                           =========     ========

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt assumed/transferred from Varian Associates, Inc................................       $     --      $77,100
                                                                                           =========     ========

Transfer of property, plant, and equipment..........................................       $     --      $ 9,900
                                                                                           =========     ========

SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid...................................................................       $  2,453      $   510
                                                                                           =========     ========
Interest paid.......................................................................       $  1,928      $    37
                                                                                           =========     ========
</TABLE>







        See accompanying Notes to the Consolidated Financial Statements.

                                       5
<PAGE>


                      VARIAN, INC. AND SUBSIDIARY COMPANIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1.  INTERIM CONSOLIDATED FINANCIAL STATEMENTS

     These 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.  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 year ended
October  1,  1999  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  Form 10-K for the year ended  October 1, 1999,  which has been
filed  with the  Securities  and  Exchange  Commission.  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 second
quarter and six months ended March 31, 2000 are not  necessarily  indicative  of
the results to be expected for a full year or for any other periods.

NOTE 2.  DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

     Varian, Inc., (the "Company") is a major supplier of scientific instruments
and  consumables,  vacuum  technology  products and  services,  and  electronics
manufacturing  services.  These businesses primarily serve life science,  health
care,  semiconductor  processing,   communications,   industrial,  and  academic
customers.

     Until  April 2, 1999,  the  business  of the  Company  was  operated as the
Instrument  Business  ("IB") of Varian  Associates,  Inc.  ("VAI").  The interim
consolidated  financial  statements generally reflect IB's results of operations
and cash flows for the  quarter  and six  months  ended  April 2, 1999,  and the
Company's  results of  operations  and cash flows for the quarter and six months
ended March 31, 2000. The interim consolidated financial results for the quarter
and six months  ended April 2, 1999 were  carved out from the interim  financial
statements of VAI using the  historical  results of operations of IB and include
the  accounts of IB after  elimination  of  inter-business  transactions.  These
interim  consolidated  financial results also include allocations of certain VAI
corporate expenses (including legal,  accounting,  employee benefits,  insurance
services,   information  technology  services,  treasury,  and  other  corporate
overhead) to IB.

     The Company's  fiscal years reported are the 52-week  periods ending on the
Friday  nearest  September 30. Fiscal year 2000 will comprise the 52-week period
ending  September  29, 2000,  and fiscal year 1999 was  comprised of the 52-week
period ended October 1, 1999. The fiscal quarters ended March 31, 2000 and April
2, 1999 each comprise 13 weeks,  and the six-month  periods ended March 31, 2000
and April 2, 1999 each comprise 26 weeks.

NOTE 3.  CHANGE IN FUNCTIONAL CURRENCY

     Statement  of  Financial   Accounting  Standards  ("SFAS")  52  sets  forth
guidelines  for  determining  the  functional  currency to be used for financial
reporting. Subsequent to becoming independent from VAI, the Company made certain
changes in the way it conducts business internationally.  A majority of business
transactions  are  now  conducted  in the  local  currencies  of the  respective
subsidiaries.  Accordingly,  effective  October 2, 1999, the Company changed its
functional  currency  from  the  U.S.  dollar  to the  local  currencies  of the
respective  subsidiaries  as  prescribed by FAS 52. Under FAS 52, when the local
currencies are determined to be the functional currency,  assets and liabilities
are  translated  using current  exchange  rates at the balance  sheet date,  and
income and expense  accounts are translated at average  exchange rates in effect
during the period.  Translation of assets and liabilities at a current  exchange
rate  results in  periodic  translation  gains and losses  that are  recorded in
stockholders' equity as a component of other comprehensive income. Upon adopting
a  local  currency  functional   currency,   the  Company  recorded  an  initial
translation  loss of  $6.6  million  in the  cumulative  translation  adjustment
component  of other  comprehensive  income (see Note 7).  This loss  principally
related to translating property,  plant, and equipment at current exchange rates
versus the historical exchange rates previously used.

                                       6
<PAGE>

                      VARIAN, INC. AND SUBSIDIARY COMPANIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4.  BALANCE SHEET DETAIL

                                       MAR. 31,       OCT. 1,
                                         2000          1999
                                      ----------    ----------
(IN THOUSANDS)
INVENTORIES
Raw materials and parts..........     $  46,725     $  36,149
Work in process..................        13,985         5,487
Finished goods...................        31,691        24,998
                                      ----------    ----------
                                      $  92,401     $  66,634
                                      ==========    ==========

     Inventories  are  valued  at the lower of cost or  market  (net  realizable
value) using the last-in,  first-out  (LIFO) cost for certain U.S.  inventories.
All other  inventories are valued  principally at average cost. If the first-in,
first-out (FIFO) method had been used for those operations  valuing  inventories
on a LIFO  basis,  inventories  would have been  higher  than  reported by $14.8
million at March 31, 2000 and $14.4 million at October 1, 1999.

NOTE 5.  FORWARD EXCHANGE CONTRACTS

     The Company's  forward  exchange  contracts  generally range from one to 12
months in original maturity.  Forward exchange contracts outstanding as of March
31, 2000 that hedge the  balance  sheet and certain  purchase  commitments  were
effective  March 31, 2000,  and  accordingly  there were no unrealized  gains or
losses  associated  with such  contracts  and the fair value of these  contracts
approximates  their  notional  values.  Forward  exchange  contracts  that  were
outstanding as of March 31, 2000 are summarized as follows:


  (IN THOUSANDS)                                     NOTIONAL       NOTIONAL
                                                    VALUE SOLD     PURCHASED
                                                     ---------     ---------
  Australian Dollar.............................     $     --      $ 14,817
  Japanese Yen..................................       14,030            --
  British Pound.................................        7,054        15,508
  Canadian Dollar...............................        3,985            --
  Euro..........................................           --         3,162
                                                     ---------     ---------
     Total......................................     $ 25,069      $ 33,487
                                                     =========     =========

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 common stock shares
issuable pursuant to the exercise of outstanding stock options  determined using
the treasury stock method.

     For periods  prior to April 3, 1999,  pro forma  earnings  (loss) per share
were calculated assuming that the weighted-average  number of shares outstanding
during the period equaled the number of shares of common stock outstanding as of
the  Distribution  on April 2,  1999.  Also,  for  computing  pro forma  diluted
earnings (loss) per share, the additional shares issuable upon exercise of stock
options were  determined  using the treasury stock method based on the number of
replacement stock options issued as of the Distribution on April 2, 1999.

     For the fiscal  quarter  and six  months  ended  April 2, 1999,  options to
purchase  3,030,355  potential  common stock shares with exercise prices greater
than the market value on April 2, 1999 of such common stock were  excluded  from
the calculation of diluted earnings per share.

                                       7
<PAGE>

                      VARIAN, INC. AND SUBSIDIARY COMPANIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A reconciliation follows:
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                             QUARTER ENDED                 SIX MONTHS ENDED
                                                      ------------ --- -----------    ------------- - -----------
                                                       MAR. 31,         APR. 2,         MAR. 31,       APR. 2,
                                                         2000             1999            2000           1999
                                                      ------------     -----------    -------------   -----------
<S>                                                   <C>              <C>            <C>             <C>
BASIC
Net earnings (loss)..............................     $    10,149      $   (9,974)    $     18,572    $   (5,715)
Weighted average shares outstanding..............          31,498          30,423           31,154        30,423
Net earnings (loss) per share....................     $      0.32      $    (0.33)    $       0.60    $    (0.19)
                                                      ============     ===========    =============   ===========

DILUTED
Net earnings (loss)..............................     $    10,149      $   (9,974)    $     18,572    $   (5,715)
Weighted average shares outstanding..............          31,498          30,423           31,154        30,423
Net effect of dilutive stock options.............           2,272             164            2,078           164
                                                      ------------     -----------    -------------   -----------

Total shares.....................................          33,770          30,587           33,232        30,587
Net earnings (loss) per share....................     $      0.30      $    (0.33)    $       0.56    $    (0.19)
                                                      ============     ===========    =============   ===========
</TABLE>


NOTE 7.  COMPREHENSIVE INCOME (LOSS)

     Comprehensive  income  (loss) is  comprised  of net income and the currency
translation adjustment. Comprehensive income (loss) was $4.7 million and ($10.0)
million  for  the  three  months  ended  March  31,  2000  and  April  2,  1999,
respectively  and $4.4 million and ($5.7) million for the six months ended March
31, 2000 and April 2, 1999, respectively.

NOTE 8.  DEBT AND CREDIT FACILITIES

     The  Distribution  Agreement  provided for the division  among the Company,
VSEA, and VMS of VAI's cash and debt as of April 2, 1999. Under the Distribution
Agreement,  the  Company  was to assume 50% of VAI's  term loans and  receive an
amount  of cash  from VAI  such  that it would  have  net debt  (defined  in the
Distribution  Agreement as the amount outstanding under the term loans and notes
payable,  less cash and cash equivalents)  equal to approximately 50% of the net
debt of  the Company and VMS,  subject to such  adjustment  as was  necessary to
provide  VMS with a  net worth (as  defined  in the  Distribution  Agreement) of
between  40% and 50% of the  aggregate  net worth of  the  Company  and VMS, and
subject to further  adjustment to reflect the Company's  approximately 50% share
of the estimated proceeds, if any, to  be received by VMS after the Distribution
from the sale of  VAI's long-term leasehold interest at certain of its Palo Alto
facilities, together with certain related buildings and  other corporate assets,
and the Company's obligation for approximately 50% of  any estimated transaction
expenses to  be  paid  by VMS after the  Distribution (in each case reduced  for
estimated taxes  payable or tax benefits received from all sales and transaction
expenses). Since  the amounts transferred  immediately prior to the Distribution
were based on estimates, these and other adjustments were required following the
Distribution. As  a result of these final adjustments, the Company  recorded  an
increase in stockholders' equity of $1.1 million in the second quarter of fiscal
year 2000. Management  believes that no further adjustments  are  necessary, and
that if any are required, they  will not have a material effect on the Company's
financial condition.

NOTE 9. CONTINGENCIES

     ENVIRONMENTAL MATTERS. In the Distribution Agreement,  the Company and VSEA
each  agreed  to  indemnify   VMS  for   one-third   of  certain   environmental
investigation and 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. VMS is also involved in various stages of environmental investigation,
monitoring,  and/or remediation

                                       8
<PAGE>

                      VARIAN, INC. AND SUBSIDIARY COMPANIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

under the direction of, or in consultation with, foreign, federal, state, and/or
local agencies at certain current VMS or former VAI facilities.

     For certain of these sites and facilities,  various  uncertainties  make it
difficult  to assess  the  likelihood  and  scope of  further  investigation  or
remediation  activities  or to estimate the future costs of such  activities  if
undertaken.  As of  March  31,  2000,  it was  nonetheless  estimated  that  the
Company's share of the future exposure for  environmental-related  investigation
and  remediation  costs for these sites and  facilities  ranged in the aggregate
from $4.5 million to $10.5 million (without  discounting to present value).  The
time frame over which these costs are  expected to be incurred  varies with each
site and facility, ranging up to approximately 30 years as of March 31, 2000. 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 accrued $4.5 million as of March 31, 2000.

     As to other sites and facilities,  sufficient  knowledge has been gained to
be able  to  better  estimate  the  scope  and  costs  of  future  environmental
activities.  As of March 31, 2000, it was estimated that the Company's  share of
the future  exposure for  environmental-related  investigation  and  remediation
costs for these sites and  facilities  ranged in the aggregate from $8.1 million
to $13.7 million  (without  discounting to present  value).  The time frame over
which  these  costs  are  expected  to be  incurred  varies  with  each site and
facility,  ranging up to approximately 30 years as of March 31, 2000. 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
liability than any other amount within the range, and that the amount and timing
of these  future  costs were  reliably  determinable.  Together,  these  amounts
totaled  $9.4  million at March 31,  2000.  The Company  therefore  accrued $4.1
million as of March 31, 2000, which represents the best estimate of its share of
these  future  costs  discounted  at 4%, net of  inflation.  This  accrual is in
addition to the $4.5 million described in the preceding paragraph.

     Claims for recovery of environmental  investigation  and remediation  costs
already incurred, and to be incurred in the future, were asserted by VAI against
various  insurance  companies  and other third  parties.  VMS is still  pursuing
recovery against a final insurance company for the benefit of itself,  VSEA, and
the Company.  In addition,  an insurance  company has agreed to pay a portion of
VAI's (now VMS') future environmental-related expenditures for which the Company
has an  indemnity  obligation,  and the  Company  therefore  has a $1.3  million
receivable in Other Assets as of March 31, 2000 for the Company's  share of such
recovery.  The Company has not reduced any  environmental-related  liability  in
anticipation of recovery with respect to claims made against third parties.

     The Company's  management  believes that its reserves for the foregoing and
certain 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 or credits against  earnings may be made.  Although any ultimate
liability  arising from  environmental-related  matters  described  herein could
result in  significant  expenditures  that, if  aggregated  and assumed to occur
within a single  fiscal  year,  would be  material  to the  Company's  financial
statements,  the likelihood of such  occurrence is considered  remote.  Based on
information  currently  available and its best assessment of the ultimate amount
and timing of  environmental-related  events, the Company's  management believes
that the costs of these environmental-related  matters are not reasonably likely
to have a material adverse effect on the Company's financial position or results
of operations.

     LEGAL  PROCEEDINGS.  In the Distribution  Agreement,  the Company agreed to
reimburse VMS for one-third of certain costs and expenses  (after  adjusting for
any insurance  proceeds and tax benefits  recognized or realized by VMS for such
costs and  expenses)  that are paid after April 2, 1999 and arise from actual or
potential  claims  or legal  proceedings  relating  to  discontinued,  former or
corporate  operations of VAI. These shared  liabilities are generally managed by
VMS,  and  expenses  and losses  (adjusted  for any  insurance  proceeds and tax
benefits  recognized  or  realized  by VMS for  such  costs  and  expenses)  are
generally borne one-third each by the Company, VMS, and VSEA. Also, from time to
time,  the Company is  involved  in a number of its own legal  actions and could
incur an uninsured  liability in one or more of them. While the ultimate outcome
of all of the foregoing legal matters is not determinable,  management  believes
that these matters are not reasonably  likely to have a material  adverse effect
on the Company's financial position or results of operations.


                                       9
<PAGE>

                      VARIAN, INC. AND SUBSIDIARY COMPANIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10.   RESTRUCTURING CHARGES

     During the second quarter of fiscal year 1999, IB's  management  approved a
program  to  consolidate  field  sales  and  service  organizations  in  Europe,
Australia and the United  States so as to fall within the direct  responsibility
of  management  at principal  factories in those  countries,  in order to reduce
costs,  simplify  management  structure,  and  benefit  from the  infrastructure
existing in those factories.  This restructuring  entailed consolidating certain
sales, service, and support operations. The consolidation resulted in exiting of
a product line,  closing or  downsizing of sales  offices,  and  termination  of
approximately 100 personnel. All restructuring activities are expected to be
completed within one year, except for future lease payments. The following table
sets forth certain details associated with this restructuring:
<TABLE>
<CAPTION>

                                                                                          CASH
                                                                        ACCRUAL AT    PAYMENTS AND    ACCRUAL AT
                                                                        DECEMBER 31,      OTHER         MARCH 31,
                                                                            1999       REDUCTIONS        2000
                                                                        -----------   -------------   -----------
<S>                                                                     <C>           <C>             <C>
(IN THOUSANDS)
Lease payments and other facility expenses............................. $    1,131    $         89    $    1,042
Severance and other related employee benefits..........................      1,576             398         1,178
                                                                        -----------   -------------   -----------
Total.................................................................. $    2,707    $        487    $    2,220
                                                                        ===========   =============   ===========
</TABLE>

NOTE 11.   INDUSTRY SEGMENTS

     The  Company's   operations  are  grouped  into  three  business  segments:
Scientific  Instruments,  Vacuum  Technologies,  and Electronics  Manufacturing.
Scientific  Instruments  is a supplier  of  instruments,  consumable  laboratory
supplies,  and after sales support used in studying the chemical composition and
structure of myriad  substances  and for imaging.  These  products are tools for
scientists engaged in drug discovery, life sciences, genetic engineering, health
care,  environmental  analysis,  quality control, and academic research.  Vacuum
Technologies provides products and solutions to create,  maintain,  contain, and
measure  an  ultra-clean   environment  for  complex  industrial  processes  and
research.  Vacuum Technologies products are used in semiconductor  manufacturing
equipment,  analytical  instruments,   industrial  manufacturing,   and  quality
control.  Electronics Manufacturing provides contract manufacturing services for
technology companies with low-volume and high-mix requirements.

     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.
<TABLE>
<CAPTION>

INDUSTRY SEGMENTS
                                                                          (IN MILLIONS)
                                                         QUARTER ENDED                    QUARTER ENDED
                                                   ---------------------------    ------------------------------
                                                   MARCH 31, 2000  APR. 2, 1999   MAR. 31, 2000    APR. 2, 1999
                                                   ------------    -----------    -------------    -------------
                                                                                  PRETAX EARNINGS  PRETAX EARNINGS
                                                      SALES           SALES          (LOSS)           (LOSS)
                                                   ------------    -----------    -------------    -------------
<S>                                                <C>             <C>            <C>              <C>
Scientific Instruments.......................      $     102.0     $     97.4     $       11.2     $      (16.1)
Vacuum Technologies .........................             34.8           26.6              5.8             (1.5)
Electronics Manufacturing....................             40.5           24.9              3.0              1.1
                                                   ------------    -----------    -------------    -------------
Total industry segments......................            177.3          148.9             20.0            (16.5)
General corporate............................               --             --             (3.1)            (1.7)
Interest (exp.)/inc., net ...................               --             --             (0.5)             0.2
                                                   ------------    -----------    -------------    -------------
Total .......................................      $     177.3     $    148.9     $       16.4     $      (18.0)
                                                   ============    ===========    =============    =============
</TABLE>

                                       10
<PAGE>

                      VARIAN, INC. AND SUBSIDIARY COMPANIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
INDUSTRY SEGMENTS
                                                                           (IN MILLIONS)
                                                          SIX MONTHS ENDED               SIX MONTHS ENDED
                                                    ----------------------------  --------------------------------
                                                    MARCH 31, 2000  APR. 2, 1999   MAR. 31, 2000    APR. 2, 1999
                                                    ------------     -----------  ---------------  ---------------
                                                                                  PRETAX EARNINGS  PRETAX EARNINGS
                                                       SALES            SALES         (LOSS)           (LOSS)
                                                    ------------     -----------  ---------------  ---------------
<S>                                                  <C>              <C>            <C>              <C>
Scientific Instruments........................       $     196.3      $    187.1     $      22.3      $     (9.3)
Vacuum Technologies...........................              66.7            48.7            10.3            (0.4)
Electronics Manufacturing.....................              74.3            46.4             5.7             2.4
                                                    ------------     -----------  ---------------  ---------------
Total industry segments.......................             337.3           282.2            38.3            (7.3)
General corporate.............................                --              --            (6.7)           (3.3)
Interest (exp.)/inc., net.....................                --              --            (1.2)            0.3
                                                    ------------     -----------  ---------------  ---------------
Total.........................................       $     337.3      $    282.2     $      30.4      $    (10.3)
                                                     ===========      ==========  ===============  ===============

</TABLE>

NOTE 12.   STOCK REPURCHASE PROGRAM

     The  Company  repurchases  shares of its  common  stock  under a program to
manage the dilution created by shares issued under employee stock plans.  During
the  second  quarter of fiscal  year  2000,  the  Company's  Board of  Directors
authorized the Company to repurchase up to 1,000,000  shares of its common stock
until  September 28, 2001.  The stock  repurchases  are limited by the amount of
cash generated through stock option exercises since October 4, 1999 and sales of
stock under the Company's Employee Stock Purchase Plan.

     During the second  quarter of fiscal  year 2000,  the  Company  repurchased
82,500 shares for an aggregate cost of $3.6 million of which 25,000 shares ($1.1
million)  did not  settle.  As of March 31,  2000,  the  Company  had  remaining
authorization for future repurchases of 917,500 shares.

NOTE 13.   EMPLOYEE STOCK PURCHASE PLAN

     During the second  quarter of fiscal  year  2000,  the  Company's  Board of
Directors  approved an Employee  Stock  Purchase  Plan for which the Company set
aside  1,200,000  shares of common stock for issuance under the Plan.  Beginning
with the first enrollment date of April 3, 2000,  eligible Company employees may
set  aside  for  purchases  under  the  Plan  between  1% and  10%  of  eligible
compensation through payroll deductions.  The participants'  purchase price will
be the lower of 85% of the stock's market value on the enrollment date or 85% of
the stock's market value on the purchase date.  Enrollment dates occur every six
months and purchase dates occur each quarter.

NOTE 14.   RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting and Standards Board issued Statement
of Financial  Accounting  Standards  ("SFAS") 133,  "Accounting  for  Derivative
Instruments  and  Hedging  Activities.  "SFAS  133  requires  derivatives  to be
measured  at fair  value and to be  recorded  as assets  or  liabilities  on the
balance sheet.  The accounting for gains or losses resulting from changes in the
fair  values  of  those  derivatives  would  be  dependent  upon  the use of the
derivative and whether it qualifies for hedge accounting.  SFAS 133 is effective
for fiscal  quarters and years  beginning  after June 15, 2000. The Company will
adopt SFAS 133 in the first quarter of fiscal year 2001 and is in the process of
determining  the impact that  adoption will have on the  consolidated  financial
statements.

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting Bulletin ("SAB") 101, "Revenue  Recognition," which provides guidance
on  the  recognition,  presentation  and  disclosure  of  revenue  in  financial
statements filed with the Securities and Exchange  Commission.  SAB 101 outlines
the basic criteria that must be met to recognize  revenue and provides  guidance
for disclosures  related to revenue recognition  policies.  SAB 101 is effective
for the  Company's  first quarter of fiscal year 2001,  beginning  September 30,
2000,  however earlier  adoption is permitted.  The Company is in the process of
determining  the impact that  adoption will have on the  consolidated  financial
statements.

                                       11
<PAGE>

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,  manufactured,  sold, and serviced
scientific  instruments  and  vacuum  technologies,  and a  business  unit  that
provided contract electronics manufacturing.  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,  a Tax Sharing Agreement,  and a
Transition Services Agreement.

     The  interim  consolidated  financial  statements  generally  reflect  IB's
results of operations  and cash flows for the quarter and six months ended April
2, 1999, and the Company's  results of operations and cash flows for the quarter
and six months ended March 31, 2000. The interim consolidated  financial results
for the quarter  ended April 2, 1999 were carved out from the interim  financial
statements of VAI using the  historical  results of operations of IB and include
the  accounts of IB after  elimination  of  inter-business  transactions.  These
interim  consolidated  financial results also include allocations of certain VAI
corporate expenses (including legal,  accounting,  employee benefits,  insurance
services,   information  technology  services,  treasury,  and  other  corporate
overhead)  to IB. These  amounts have been  allocated to IB on the basis that is
considered by management to reflect most fairly or reasonably the utilization of
the services  provided to or the benefit  obtained by IB.  Typical  measures and
activity  indicators  used for  allocation  purposes  include  headcount,  sales
revenue, and payroll expense. The Company's management believes that the methods
used to allocate these amounts are reasonable.  However,  these  allocations are
not  necessarily  indicative of the amounts that would have been or that will be
recorded by the Company on a stand-alone basis.

     The Company's  fiscal years reported are the 52-week  periods ending on the
Friday  nearest  September 30. Fiscal year 2000 will comprise the 52-week period
ending  September  29, 2000,  and fiscal year 1999 was  comprised of the 52-week
period ended October 1, 1999. The fiscal quarters ended March 31, 2000 and April
2, 1999 each comprise 13 weeks,  and the six-month  periods ended March 31, 2000
and April 2, 1999 each comprise 26 weeks.

RESULTS OF OPERATIONS

SECOND QUARTER OF FISCAL YEAR 2000 COMPARED TO SECOND QUARTER OF FISCAL YEAR
1999

     SALES. Sales were $177.3 million in the second quarter of fiscal year 2000,
an  increase  of 19.1%  from sales of $148.9  million  in the second  quarter of
fiscal year 1999. Sales by the Scientific Instruments,  Vacuum Technologies, and
Electronics   Manufacturing  segments  increased  by  4.8%,  30.7%,  and  62.3%,
respectively.

     Geographically,  sales in North America of $103.0 million,  Europe of $48.8
million  and the rest of the world of $25.5  million  in the  second  quarter of
fiscal year 2000  represented  increases of 28%, 0%, and 33%,  respectively,  as
compared to the second quarter of fiscal year 1999. The significant  increase in
North  America  was largely due to the strong  sales  growth of the  Electronics
Manufacturing  segment,  the sales of which are all in North  America.  The flat
sales in  Europe  resulted  from the  strength  of the U.S.  dollar  versus  the
European  currencies and the timing of NMR product sales to European  customers.
The  significant  increase  in the rest of the  world was  primarily  due to the
general economic recovery of the Asian markets.


                                       12
<PAGE>

     Orders in the  second  quarter  of fiscal  year 2000 were  $187.4  million,
compared  to $154.2  million in the second  quarter  of fiscal  year 1999.  Both
Vacuum Technologies and Electronics Manufacturing had particularly strong orders
growth, with Scientific Instruments also contributing to the increase.

     GROSS PROFIT. Gross profit was $67.5 million  (representing 38.1% of sales)
in  the  second  quarter  of  fiscal  year  2000,   compared  to  $47.2  million
(representing  31.7% of sales) in the second  quarter of fiscal  year 1999.  The
lower gross profit percentage in the second quarter of fiscal year 1999 resulted
primarily from actions taken as part of an overall  reorganization  of IB, which
included  actions to prepare IB to  separate  from VAI and become a  stand-alone
company,  other organizational changes and a comprehensive product review, which
resulted in a decision to  accelerate  transition  from  certain  older to newer
products  necessitating the writedown of certain excess and obsolete inventories
and the lowering of prices to accelerate the liquidation of older products.  The
impact on gross  profit of these  actions was in  addition to the  restructuring
charges discussed below.

     SALES AND  MARKETING.  Sales and  marketing  expenses  were  $31.3  million
(representing  17.7% of sales)  in the  second  quarter  of  fiscal  year  2000,
compared to $34.2 million (representing 22.9% of sales) in the second quarter of
fiscal  year  1999.  The  higher  costs as a  percentage  of sales in the second
quarter  of  fiscal  year  1999  resulted  from  actions  taken  as  part of the
above-described reorganization,  including costs to move people and equipment to
new consolidated locations, writedown of field demonstration equipment following
the accelerated transition to newer products, and other higher than normal costs
related  to  the   reorganization.   These  changes  were  in  addition  to  the
restructuring  charges  discussed  below.  Sales and  marketing  expenses in the
second  quarter of fiscal year 2000  benefited  from the cost  savings from last
year's  restructuring and reorganization  activities and the overall leverage of
higher sales.

     RESEARCH AND  DEVELOPMENT.  Research  and  development  expenses  were $8.5
million  (representing 4.8% of sales) in the second quarter of fiscal year 2000,
compared to research and development expenses of $9.3 million (representing 6.2%
of sales) in the second  quarter  of fiscal  year  1999.  The second  quarter of
fiscal year 1999 included  accelerated  development  costs to complete a new gas
chromatograph.

     GENERAL AND ADMINISTRATIVE.  General and administrative expenses were $10.7
million  (representing 6.0% of sales) in the second quarter of fiscal year 2000,
compared to $10.9 million  (representing 7.3% of sales) in the second quarter of
fiscal year 1999. General and administrative  expenses for the second quarter of
fiscal  year  2000  were  actual  costs  of the  Company,  whereas  general  and
administrative  costs  for the  second  quarter  of  fiscal  year  1999 were the
Company's allocated share of VAI's costs.

     RESTRUCTURING CHARGES.  During the second quarter of fiscal year 1999, IB's
management   approved  a  program  to   consolidate   field  sales  and  service
organizations in Europe,  Australia,  and the United States so as to fall within
the direct  responsibility  of management at IB's  principal  factories in those
countries in order to reduce costs,  simplify  management  structure and benefit
from the infrastructure existing in those factories. This restructuring entailed
consolidating  certain sales, service and support operations.  The consolidation
resulted in exiting of a product  line,  closing or  downsizing of sales offices
and termination of approximately 100 personnel.

     NET INTEREST EXPENSE.  Net interest expense was $0.5 million  (representing
0.3% of  sales)  for the  second  quarter  of  fiscal  year  2000.  Prior to the
Distribution  on April 2, 1999, no debt had been  allocated to the Company.  See
"Liquidity and Capital Resources" below.

     TAXES ON EARNINGS.  The effective  income tax rate was 38.1% for the second
quarter of fiscal year 2000,  compared to 44.5% for the second quarter of fiscal
year 1999.  The fiscal year 1999 rate is higher  because the Company  realized a
larger  proportion of high tax-rate,  foreign country income in fiscal year 1999
(due primarily to  restructuring  and related charges incurred in lower tax-rate
countries) than it anticipates for fiscal year 2000.

     NET EARNINGS.  Net earnings were $10.1 million  ($0.30 diluted net earnings
per share) in the second  quarter of fiscal year 2000,  compared to the net loss
of $10.0  million  ($0.33  diluted net loss per share) in the second  quarter of
fiscal year 1999.  The second  quarter of fiscal year 1999 included IB's overall
reorganizations,  which resulted in incremental costs primarily included in cost
of sales, marketing and restructuring charges.

     SEGMENTS.  Scientific  Instruments  sales of $102.0  million  in the second
quarter of fiscal  year 2000  increased  4.8% over the second  quarter of fiscal
year 1999 sales of $97.4  million.  Sales of  analytical  products  continued to
grow. However, sales of NMR products declined slightly due to a shift in product
mix in recent  quarters  toward  higher  priced,  high field systems with longer
manufacturing lead times. As a result, NMR backlog has grown to

                                       13
<PAGE>

record  levels.  Earnings from  operations in the second  quarter of fiscal year
2000 of $11.2 million  (11.0% of sales)  increased  from a loss of $16.1 million
(16.4% of sales) in the second  quarter of fiscal year 1999.  The second quarter
of fiscal year 1999 was  significantly  impacted by IB's overall  reorganization
discussed above.

     Vacuum  Technologies sales of $34.8 million in the second quarter of fiscal
year 2000 increased  30.7% above the second quarter of fiscal year 1999 sales of
$26.6  million.  The increase in sales was  primarily due to the recovery of the
Asian   economies  and  the  improved   demand  from   semiconductor   equipment
manufacturers  and users.  Earnings  from  operations  in the second  quarter of
fiscal year 2000 of $5.8 million  (16.5% of sales) were up from the $1.5 million
loss (5.7% of sales) in the  second  quarter  of fiscal  year  1999.  The second
quarter  of  fiscal  year  1999  was   negatively   impacted  by  IB's   overall
reorganization discussed above and by the lower sales volume.

     Electronics  Manufacturing  sales in the second quarter of fiscal year 2000
of $40.5  million  increased  62.3% from the second  quarter of fiscal year 1999
sales of $24.9  million.  The  increase in sales was  principally  due to higher
demand from the communications and medical equipment  industries and the general
movement of small to medium size  manufacturing  companies  to  outsource  their
electronics manufacturing. In addition, in February 2000 the Company acquired an
electronics manufacturing operation in Poway, California, which added $4 million
to revenues in the quarter.  Earnings from  operations in the second  quarter of
$3.0 million (7.6% of sales)  increased from $1.1 million (4.5% of sales) in the
second quarter of fiscal year 1999. The increase in earnings from operations was
primarily the result of increased sales.

FIRST HALF OF FISCAL YEAR 2000 COMPARED TO FIRST HALF OF FISCAL YEAR 1999

     SALES.  Sales were $337.3 million in the first half of fiscal year 2000, an
increase of 19.5% from sales of $282.2  million in the first half of fiscal year
1999. Sales by the Scientific Instruments,  Vacuum Technologies, and Electronics
Manufacturing segments increased by 4.9%, 36.8%, and 60.0%, respectively.

     Geographically,  sales in North America of $194.0 million,  Europe of $93.1
million  and the rest of the world of $50.2  million in the first half of fiscal
year 2000 represented increases of 30%, 1%, and 25%,  respectively,  as compared
to the first half of fiscal year 1999. The significant increase in North America
was  largely due to the strong  sales  growth of the  Electronics  Manufacturing
segment,  the sales of which are all in North America.  The flat sales in Europe
resulted from the strength of the U.S. dollar versus the European currencies and
the timing of NMR product sales to European customers.  The significant increase
in the rest of the world was primarily due to the general  economic  recovery of
the Asian markets.

     Orders in the first half of fiscal year 2000 were $359.3 million,  compared
to  $292.7  million  in  the  first  half  of  fiscal  year  1999.  Both  Vacuum
Technologies  and  Electronics  Manufacturing  had  particularly  strong  orders
growth, with Scientific Instruments also contributing to the increase.

     GROSS PROFIT. Gross profit was $129.3 million (representing 38.4% of sales)
in the first half of fiscal year 2000,  compared to $99.9 million  (representing
35.4% of sales) in the first half of fiscal year 1999.  The lower  gross  profit
percentage in the first half of fiscal year 1999 resulted primarily from actions
taken as part of an overall  reorganization  of IB,  which  included  actions to
prepare  IB to  separate  from  VAI and  become  a  stand-alone  company,  other
organizational  changes and a comprehensive  product review, which resulted in a
decision  to  accelerate   transition  from  certain  older  to  newer  products
necessitating  the writedown of certain excess and obsolete  inventories and the
lowering of prices to accelerate the liquidation of older  products.  The impact
on gross profit of these  actions was in addition to the  restructuring  charges
discussed below.

     SALES AND  MARKETING.  Sales and  marketing  expenses  were  $61.1  million
(representing 18.1% of sales) in the first half of fiscal year 2000, compared to
$64.3  million  (representing  22.8% of sales) in the first half of fiscal  year
1999. The higher costs as a percentage of sales in the first half of fiscal year
1999 resulted from actions taken as part of the above-described  reorganization,
including  costs to move people and  equipment  to new  consolidated  locations,
writedown of field demonstration  equipment following the accelerated transition
to  newer  products,   and  other  higher  than  normal  costs  related  to  the
reorganization.  These  changes  were in addition to the  restructuring  charges
discussed below.  Sales and marketing  expenses in the first half of fiscal year
2000  benefited  from  the cost  savings  from  last  year's  restructuring  and
reorganization activities and the overall leverage of higher sales.

     RESEARCH AND  DEVELOPMENT.  Research and  development  expenses  were $15.5
million  (representing  4.6% of sales) in the first  half of fiscal  year  2000,
compared to research and  development  expenses of $16.4  million  (representing
5.8% of sales) in the first half of fiscal year 1999.

                                       14
<PAGE>

     GENERAL AND ADMINISTRATIVE.  General and administrative expenses were $21.0
million  (representing  6.2% of sales) in the first  half of fiscal  year  2000,
compared  to $18.7  million  (representing  6.6% of sales) in the first  half of
fiscal year 1999.  General  and  administrative  expenses  for the first half of
fiscal  year  2000  were  actual  costs  of the  Company,  whereas  general  and
administrative  costs for the first half of fiscal year 1999 were the  Company's
allocated share of VAI's costs.

     RESTRUCTURING  CHARGES.  During  the first half of fiscal  year 1999,  IB's
management   approved  a  program  to   consolidate   field  sales  and  service
organizations in Europe,  Australia,  and the United States so as to fall within
the direct  responsibility  of management at IB's  principal  factories in those
countries in order to reduce costs,  simplify  management  structure and benefit
from the infrastructure existing in those factories. This restructuring entailed
consolidating  certain sales, service and support operations.  The consolidation
resulted in exiting of a product  line,  closing or  downsizing of sales offices
and termination of approximately 100 personnel.

     NET INTEREST EXPENSE.  Net interest expense was $1.2 million  (representing
0.4% of sales) for the first half of fiscal year 2000. Prior to the Distribution
on April 2, 1999, no debt had been allocated to the Company.  See "Liquidity and
Capital Resources" below.

     TAXES ON EARNINGS.  The  effective  income tax rate was 39.0% for the first
half of fiscal  year 2000,  compared  to 44.5% for the first half of fiscal year
1999. The fiscal year 1999 rate is higher because the Company  realized a larger
proportion of high  tax-rate,  foreign  country  income in fiscal year 1999 (due
primarily  to  restructuring  and related  charges  incurred  in lower  tax-rate
countries) than it anticipates for fiscal year 2000.

     NET EARNINGS.  Net earnings were $18.6 million  ($0.56 diluted net earnings
per share) in the first half of fiscal  year 2000,  compared  to the net loss of
$5.7 million ($0.19 diluted net loss per share) in the first half of fiscal year
1999. The first half of fiscal year 1999 included IB's overall  reorganizations,
which  resulted  in  incremental  costs  primarily  included  in cost of  sales,
marketing and restructuring charges.

     SEGMENTS.  Scientific Instruments sales of $196.3 million in the first half
of fiscal year 2000 increased 4.9% over the first half of fiscal year 1999 sales
of $187.1  million.  Sales of analytical  products  continued to grow.  However,
sales of NMR products  declined slightly due to a shift in product mix in recent
quarters toward higher priced, high field systems with longer manufacturing lead
times.  As a result,  NMR  backlog  has grown to record  levels.  Earnings  from
operations  in the first  half of fiscal  year 2000 of $22.3  million  (11.4% of
sales) increased from a loss of$9.3 million (4.9% of sales) in the first half of
fiscal year 1999. The first half of fiscal year 1999 was significantly  impacted
by IB's overall reorganization discussed above.

     Vacuum Technologies sales of $66.7 million in the first half of fiscal year
2000  increased  36.8%  above the first half of fiscal  year 1999 sales of $48.7
million.  The increase in sales was  primarily  due to the recovery of the Asian
economies and the improved demand from semiconductor equipment manufacturers and
users.  Earnings from  operations in the first half of fiscal year 2000 of $10.3
million  (15.4% of sales) were up from the loss of $0.4 million  (0.1% of sales)
in the first half of fiscal  year 1999.  The first half of fiscal  year 1999 was
negatively  impacted by IB's overall  reorganization  discussed above and by the
lower sales volume.

     Electronics  Manufacturing  sales in the first half of fiscal  year 2000 of
$74.3 million  increased  60.0% from the first half of fiscal year 1999 sales of
$46.4 million.  The increase in sales was  principally due to higher demand from
the communications and medical equipment  industries and the general movement of
small to medium size  manufacturing  companies  to outsource  their  electronics
manufacturing. In addition, in February 2000 the Company acquired an electronics
manufacturing operation in Poway, California, which added $4 million to revenues
in the  second  quarter.  Earnings  from  operations  in the first  half of $5.7
million (7.7% of sales) increased from $2.4 million (5.2% of sales) in the first
half of fiscal year 1999. The increase in earnings from operations was primarily
the result of increased sales.

LIQUIDITY AND CAPITAL RESOURCES

     VAI CASH AND DEBT ALLOCATIONS.  The Distribution Agreement provided for the
division among the Company,  VSEA, and VMS of VAI's cash and debt as of April 2,
1999. Under the Distribution  Agreement,  the Company was to assume 50% of VAI's
term  loans and  receive  an amount of cash from VAI such that it would have net
debt (defined in the Distribution  Agreement as the amount outstanding under the
term  loans  and  notes  payable,  less  cash  and  cash  equivalents)  equal to
approximately  50% of the net  debt of the  Company  and  VMS,  subject  to such
adjustment  as was  necessary to provide VMS with a net worth (as defined in the
Distribution Agreement) of

                                       15
<PAGE>

between  40% and 50% of the  aggregate  net worth of the  Company  and VMS,  and
subject to further  adjustment to reflect the Company's  approximately 50% share
of the estimated proceeds,  if any, to be received by VMS after the Distribution
from the sale of VAI's long-term  leasehold interest at certain of its Palo Alto
facilities,  together with certain related buildings and other corporate assets,
and the Company's obligation for approximately 50% of any estimated  transaction
expenses  to be paid by VMS after the  Distribution  (in each case  reduced  for
estimated taxes payable or tax benefits  received from all sales and transaction
expenses).  Since the amounts transferred  immediately prior to the Distribution
were based on estimates, these and other adjustments were required following the
Distribution.  As a result of these final  adjustments,  the Company recorded an
increase in stockholders' equity of $1.1 million in the second quarter of fiscal
year 2000.  Management believes that no further  adjustments are necessary,  and
that if any are required,  they will not have a material effect on the Company's
financial condition.

     CASH AND CASH EQUIVALENTS. The Company generated $32.5 million of cash from
operations in the first half of fiscal year 2000, which compares to $8.6 million
in the first half of fiscal  year 1999.  The  increase  in cash from  operations
resulted  from  improved  net  earnings  and  a  reduction  in  working  capital
requirements.  The Company  used $17.4  million of cash for the  acquisition  of
capital  equipment  and  an  electronics   manufacturing   operation  in  Poway,
California in the first half fiscal year 2000,  which  compares to $10.5 million
for the acquisition of capital  equipment in the first half of fiscal year 1999.
The Company  generated  $17.0 million of cash from  financing  activities in the
first half of fiscal year 2000  compared  to $14.8  million in the first half of
fiscal year 1999.  Proceeds from stock options  represented a significant amount
of the  financing  reduced by a scheduled  debt  payment and the  repurchase  of
57,500  shares of the  Company's  common stock under a recently  approved  stock
buy-back plan. The Company's  current business  strategy  contemplates  possible
acquisitions,  further stock buy-backs and/or facility expansions.  Any of these
possibilities could utilize cash currently being generated by the Company.

     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
"Environmental Matters" and "Legal Proceedings" below).

     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 fiscal year 2000.

ENVIRONMENTAL MATTERS

     The Company's  operations are subject to various foreign,  federal,  state,
and/or local laws  regulating the discharge of materials into the environment or
otherwise  relating  to  the  protection  of  the  environment.   This  includes
discharges  into soil,  water and air, and the  generation,  handling,  storage,
transportation,  and disposal of waste and  hazardous  substances.  In addition,
several countries have adopted or are reviewing proposed  regulations that would
require  manufacturers  to dispose of their  products at the end of their useful
life. These laws could increase costs and potential liabilities  associated with
the conduct of the Company's operations.

     In addition,  under the Distribution  Agreement,  the Company and VSEA each
agreed to indemnify VMS for one-third of certain environmental investigation and
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. VMS is also involved in various stages of environmental investigation,
monitoring,  and/or remediation under the direction of, or in consultation with,
foreign,  federal, state, and/or local agencies at certain current VMS or former
VAI facilities.

     For certain of these sites and facilities,  various  uncertainties  make it
difficult  to assess  the  likelihood  and  scope of  further  investigation  or
remediation  activities  or to estimate the future costs of such  activities  if
undertaken.  As of  March  31,  2000,  it was  nonetheless  estimated  that  the
Company's share of the future exposure for  environmental-related  investigation
and  remediation  costs for these sites and  facilities  ranged in the aggregate
from $4.5 million to $10.5 million (without  discounting to present value).  The
time frame over which these costs are

                                       16
<PAGE>

expected  to be  incurred  varies  with each site and  facility,  ranging  up to
approximately 30 years as of March 31, 2000. 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  accrued $4.5 million
as of March 31, 2000.

     As to other sites and facilities,  sufficient  knowledge has been gained to
be able  to  better  estimate  the  scope  and  costs  of  future  environmental
activities.  As of March 31, 2000, it was estimated that the Company's  share of
the future  exposure for  environmental-related  investigation  and  remediation
costs for these sites and  facilities  ranged in the aggregate from $8.1 million
to $13.7 million  (without  discounting to present  value).  The time frame over
which  these  costs  are  expected  to be  incurred  varies  with  each site and
facility,  ranging up to approximately 30 years as of March 31, 2000. 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
liability than any other amount within the range, and that the amount and timing
of these  future  costs were  reliably  determinable.  Together,  these  amounts
totaled  $9.4  million at March 31,  2000.  The Company  therefore  accrued $4.1
million as of March 31, 2000, which represents the best estimate of its share of
these  future  costs  discounted  at 4%, net of  inflation.  This  accrual is in
addition to the $4.5 million described in the preceding paragraph.

     Claims for recovery of environmental  investigation  and remediation  costs
already incurred, and to be incurred in the future, were asserted by VAI against
various  insurance  companies  and other third  parties.  VMS is still  pursuing
recovery against a final insurance company for the benefit of itself,  VSEA, and
the Company.  In addition,  an insurance  company has agreed to pay a portion of
VAI's (now VMS') future environmental-related expenditures for which the Company
has an  indemnity  obligation,  and the  Company  therefore  has a $1.3  million
receivable in Other Assets as of March 31, 2000 for the Company's  share of such
recovery.  The Company has not reduced any  environmental-related  liability  in
anticipation of recovery with respect to claims made against third parties.

     The Company's  management  believes that its reserves for the foregoing and
certain 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 or credits against  earnings may be made.  Although any ultimate
liability  arising from  environmental-related  matters  described  herein could
result in  significant  expenditures  that, if  aggregated  and assumed to occur
within a single  fiscal  year,  would be  material  to the  Company's  financial
statements,  the likelihood of such  occurrence is considered  remote.  Based on
information  currently  available and its best assessment of the ultimate amount
and timing of  environmental-related  events, the Company's  management believes
that the costs of these environmental-related  matters are not reasonably likely
to have a material adverse effect on the Company's financial position or results
of operations.

LEGAL PROCEEDINGS

     In the  Distribution  Agreement,  the Company  agreed to reimburse  VMS for
one-third  of certain  costs and expenses  (after  adjusting  for any  insurance
proceeds  and tax  benefits  recognized  or  realized  by VMS for such costs and
expenses)  that are paid after April 2, 1999 and arise from actual or  potential
claims or legal  proceedings  relating to  discontinued,  former,  or  corporate
operations of VAI. These shared  liabilities  are generally  managed by VMS, and
expenses  and losses  (adjusted  for any  insurance  proceeds  and tax  benefits
recognized or realized by VMS for such costs and  expenses) are generally  borne
one-third  each by the Company,  VMS,  and VSEA.  Also,  from time to time,  the
Company is  involved  in a number of its own legal  actions  and could  incur an
uninsured liability in one or more of them. While the ultimate outcome of all of
the foregoing legal matters is not determinable,  management believes that these
matters  are not  reasonably  likely to have a  material  adverse  effect on the
Company's financial position or results of operations.

YEAR 2000

     The Company  completed a  comprehensive  assessment of potential  Year 2000
problems with respect to (1) the Company's  internal systems,  (2) the Company's
products,  and (3)  significant  third  parties  with  which  the  Company  does
business.  The Company has not experienced any significant Year 2000 problems in
its internal systems,  with  previously-sold  products or with significant third
parties.  However,  there can be no  assurance  that the Company  will not incur
costs with respect to Year 2000 problems not yet experienced or reported. If the
Company  experiences  Year 2000  problems  not yet  experienced,  the  Company's
operations could be adversely impacted.  However,  management does not currently
believe that such risks are reasonably  likely to have a material adverse effect
on the Company's business, results of operations, or financial condition.

                                       17
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting and Standards Board issued Statement
of Financial  Accounting  Standards  ("SFAS") 133,  "Accounting  for  Derivative
Instruments  and  Hedging  Activities.  "SFAS  133  requires  derivatives  to be
measured  at fair  value and to be  recorded  as assets  or  liabilities  on the
balance sheet.  The accounting for gains or losses resulting from changes in the
fair  values  of  those  derivatives  would  be  dependent  upon  the use of the
derivative and whether it qualifies for hedge accounting.  SFAS 133 is effective
for fiscal  quarters and years  beginning  after June 15, 2000. The Company will
adopt SFAS 133 in the first quarter of fiscal year 2001 and is in the process of
determining  the impact that  adoption will have on the  consolidated  financial
statements.

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting Bulletin ("SAB") 101, "Revenue  Recognition," which provides guidance
on  the  recognition,  presentation  and  disclosure  of  revenue  in  financial
statements filed with the Securities and Exchange  Commission.  SAB 101 outlines
the basic criteria that must be met to recognize  revenue and provides  guidance
for disclosures  related to revenue recognition  policies.  SAB 101 is effective
for the  Company's  first quarter of fiscal year 2001,  beginning  September 30,
2000,  however earlier  adoption is permitted.  The Company is in the process of
determining  the impact that  adoption will have on the  consolidated  financial
statements.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     FOREIGN CURRENCY  EXCHANGE RISK. The Company  typically hedges its currency
exposures  associated  with  certain  assets  and  liabilities   denominated  in
non-functional currencies and with anticipated foreign currency cash flows. As a
result,  the effect of an  immediate  10% change in exchange  rates would not be
material to the  Company's  financial  condition or results of  operations.  The
Company's forward exchange contracts have generally ranged from one to 12 months
in  original  maturity,  and no forward  exchange  contract  has had an original
maturity  greater than one year.  Forward exchange  contracts  outstanding as of
March 31, 2000 that hedge the balance  sheet and  certain  purchase  commitments
were effective March 31, 2000, and accordingly there were no unrealized gains or
losses  associated  with such  contracts  and the fair value of these  contracts
approximates their notional values.

  FORWARD EXCHANGE CONTRACTS OUTSTANDING AS OF MARCH 31, 2000

                                                                     NOTIONAL
                                                       NOTIONAL       VALUE
                                                      VALUE SOLD     PURCHASED
                                                      ----------     ---------
  (IN THOUSANDS)
  Australian Dollar...............................    $      --      $ 14,817
  Japanese Yen....................................       14,030            --
  British Pound...................................        7,054        15,508
  Canadian Dollar.................................        3,985            --
  Euro............................................           --         3,162
                                                      ----------     ---------
       Total......................................    $  25,069      $ 33,487
                                                      ==========     =========

INTEREST RATE RISK

     The Company has no material exposure to market risk for changes in interest
rates. The Company invests primarily in short-term U.S. Treasury securities, 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 March 31, 2000 the
Company's debt obligations had fixed interest rates.

     The estimated fair value of the Company's debt obligations approximates the
principal  amounts  reflected below on rates currently  available to the Company
for debt with similar terms and remaining maturities.

     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.

                                       18
<PAGE>

DEBT OBLIGATIONS


PRINCIPAL AMOUNTS AND RELATED WEIGHTED AVERAGE INTEREST RATES BY YEAR OF
MATURITY
<TABLE>
<CAPTION>

                          SIX
                         MONTHS
                          ENDED                  FISCAL YEARS
                         SEP. 29,   --------------------------------------------------
(IN THOUSANDS)            2000      2001       2002       2003       2004       2005      THEREAFTER     TOTAL
                         -------    ------    -------     ------    -------    -------    ---------     ---------
<S>                      <C>        <C>       <C>         <C>       <C>        <C>        <C>           <C>
Long-term debt
(including current
portion)...........      $3,360     $6,397    $6,438      $2,974    $2,755     $2,500     $ 30,000      $ 54,424
Average interest
   rate............         7.0%       6.9%      6.9%        6.3%      6.7%       7.2%         6.8%          6.8%
</TABLE>

                                       19
<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     At the Company's Annual Meeting of Stockholders  held on February 10, 2000,
the  Company's  stockholders  elected Allen J. Lauer as a Class I director for a
three-year term, with 25,617,029 votes for and 1,459,147 votes withheld.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

       (a)   Exhibits required to be filed by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>

    EXHIBIT
      NO.          DESCRIPTION
    --------     ----------------
    <S>          <C>
    10.1*        Varian, Inc. Employee Stock Purchase Plan.
    10.2*        Amended and Restated Change in Control Agreement, dated as of February 25, 2000, Between
                 Registrant and Sergio Piras.
    10.3*        Amended and Restated Change in Control Agreement, dated as of February 25, 2000, Between
                 Registrant and C. Wilson Rudd.
    27.1         Financial Data Schedule.
</TABLE>

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

      (b) Reports on Form 8-K filed during the quarter ended March 31, 2000:

          None.

                                       20
<PAGE>

                                   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 MCCLAMMY
                             -----------------------------------------------
                                             G. Edward McClammy
                                 VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
                                        (DULY AUTHORIZED OFFICER AND
                                        PRINCIPAL FINANCIAL OFFICER)

       Dated: May 10, 2000

                                       21
<PAGE>

                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>

    EXHIBIT
      NO.          DESCRIPTION
    --------     ----------------
    <S>          <C>
    10.1*        Varian, Inc. Employee Stock Purchase Plan.
    10.2*        Amended and Restated Change in Control Agreement, dated as of February 25, 2000, Between
                 Registrant and Sergio Piras.
    10.3*        Amended and Restated Change in Control Agreement, dated as of February 25, 2000, Between
                 Registrant and C. Wilson Rudd.
    27.1         Financial Data Schedule.
</TABLE>

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

                                       22