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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 June 27, 2008

OR



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

For the transition period fromto

Commission File Number: 0-25395





VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC.

(Exact name of Registrant as Specified in its Charter)







|                                                              |  |                                 
|------------------------------------------------------------- |  | --------------------------------
|State or other jurisdiction of Incorporation or organization: |  | IRS Employer Identification No.:
|Delaware                                                      |  | 77-0501994                      
|                                                              | 
|35 Dory Road, Gloucester, Massachusetts                       |  | 01930                           
|(Address of principal executive offices)                      |  | (Zip code)                      

(978) 282-2000

(Registrants telephone number, including area code)





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

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



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  | x |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  |  ̈

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

Shares of common stock outstanding at July 25, 2008: 72,623,738









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##### Table of Contents

VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC.

TABLE OF CONTENTS



|                              |  |                                                                                         |  |                                                                                                                        |  |           
|----------------------------- |  | --------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ----------
|ItemNumber                    |  |                                                                                         |  |                                                                                                                        |  | PageNumber
|                             
|PART I. FINANCIAL INFORMATION
|                              |  |                                                                                        
|Item 1.                       |  | Consolidated Financial Statements                                                       |  |                                                                                                                       
|                              |  |                                                                                         | 
|                              |  |                                                                                         |  | Unaudited Consolidated Balance Sheets at June 27, 2008 and September 28, 2007                                          |  | 1         
|                              |  |                                                                                         | 
|                              |  |                                                                                         |  | Unaudited Consolidated Statements of Income for the three and nine month periods ended June 27, 2008 and June 29, 2007 |  | 2         
|                              |  |                                                                                         | 
|                              |  |                                                                                         |  | Unaudited Consolidated Statements of Cash Flows for the nine month periods ended June 27, 2008 and June 29, 2007       |  | 3         
|                              |  |                                                                                         | 
|                              |  |                                                                                         |  | Notes to the Unaudited Consolidated Financial Statements                                                               |  | 4         
|                              |  |                                                                                        
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations . |  | 14                                                                                                                    
|                              |  |                                                                                        
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                              |  | 22                                                                                                                    
|                              |  |                                                                                        
|Item 4.                       |  | Controls and Procedures                                                                 |  | 24                                                                                                                    
|                             
|PART II. OTHER INFORMATION   
|                              |  |                                                                                        
|Item 1.                       |  | Legal Proceedings                                                                       |  | 25                                                                                                                    
|                              |  |                                                                                        
|Item 1A.                      |  | Risk Factors                                                                            |  | 25                                                                                                                    
|                              |  |                                                                                        
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                             |  | 32                                                                                                                    
|                              |  |                                                                                        
|Item 3.                       |  | Defaults Upon Senior Securities                                                         |  | 32                                                                                                                    
|                              |  |                                                                                        
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                     |  | 32                                                                                                                    
|                              |  |                                                                                        
|Item 5.                       |  | Other Information                                                                       |  | 32                                                                                                                    
|                              |  |                                                                                        
|Item 6.                       |  | Exhibits                                                                                |  | 32                                                                                                                    
|                              |  |                                                                                         | 
|                              |  |                                                                                         |  | Signature                                                                                                              |  | 33        



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##### Table of Contents

PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                              |  |                                           |          |   |                   |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | -------- | - | ----------------- | - | -------- | -
|                                                                                                                                                                                                              |  | June 27,2008                              |          |   | September 28,2007 |  
|                                                                                                                                                                                                              |  | (Amounts in thousands, except share data) |         
|ASSETS                                                                                                                                                                                                        |  |                                           |          |   |                   |   |          |  
|Current assets                                                                                                                                                                                                |  |                                           |          |   |                   |   |          |  
|Cash and cash equivalents                                                                                                                                                                                     |  | $                                         | 121,131  |   |                   | $ | 109,514  |  
|Short-term investments                                                                                                                                                                                        |  |                                           | 55,247   |   |                   |   | 88,384   |  
|Accounts receivable, net                                                                                                                                                                                      |  |                                           | 153,578  |   |                   |   | 189,573  |  
|Inventories                                                                                                                                                                                                   |  |                                           | 165,941  |   |                   |   | 170,293  |  
|Deferred income taxes                                                                                                                                                                                         |  |                                           | 35,388   |   |                   |   | 27,907   |  
|Other current assets                                                                                                                                                                                          |  |                                           | 18,188   |   |                   |   | 26,010   |  
|                                                                                                                                                                                                              |  |                                           |          |   |                   |   |          |  
|Total current assets                                                                                                                                                                                          |  |                                           | 549,473  |   |                   |   | 611,681  |  
|                                                                                                                                                                                                              |  |                                          
|Long-term investments                                                                                                                                                                                         |  |                                           | 76,719   |   |                   |   | 96,153   |  
|Property, plant and equipment, net                                                                                                                                                                            |  |                                           | 69,246   |   |                   |   | 73,980   |  
|Goodwill                                                                                                                                                                                                      |  |                                           | 12,280   |   |                   |   | 12,280   |  
|Other assets                                                                                                                                                                                                  |  |                                           | 4,606    |   |                   |   | 4,994    |  
|                                                                                                                                                                                                              |  |                                           |          |   |                   |   |          |  
|Total assets                                                                                                                                                                                                  |  | $                                         | 712,324  |   |                   | $ | 799,088  |  
|                                                                                                                                                                                                              |  |                                           |          |   |                   |   |          |  
|                                                                                                                                                                                                              |  |                                          
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                          |  |                                           |          |   |                   |   |          |  
|Current liabilities                                                                                                                                                                                           |  |                                           |          |   |                   |   |          |  
|Current portion of long-term debt                                                                                                                                                                             |  | $                                         | 545      |   |                   | $ | 510      |  
|Accounts payable                                                                                                                                                                                              |  |                                           | 30,959   |   |                   |   | 49,863   |  
|Accrued expenses                                                                                                                                                                                              |  |                                           | 41,652   |   |                   |   | 50,478   |  
|Income taxes payable                                                                                                                                                                                          |  |                                           | 16,917   |   |                   |   | 4,811    |  
|Product warranty                                                                                                                                                                                              |  |                                           | 9,711    |   |                   |   | 12,183   |  
|Deferred revenue                                                                                                                                                                                              |  |                                           | 37,255   |   |                   |   | 54,742   |  
|                                                                                                                                                                                                              |  |                                           |          |   |                   |   |          |  
|Total current liabilities                                                                                                                                                                                     |  |                                           | 137,039  |   |                   |   | 172,587  |  
|                                                                                                                                                                                                              |  |                                          
|Long-term accrued expenses and other liabilities                                                                                                                                                              |  |                                           | 64,582   |   |                   |   | 53,904   |  
|Deferred income taxes                                                                                                                                                                                         |  |                                           | 3,685    |   |                   |   | 3,858    |  
|Long-term debt                                                                                                                                                                                                |  |                                           | 2,410    |   |                   |   | 2,761    |  
|                                                                                                                                                                                                              |  |                                           |          |   |                   |   |          |  
|Total liabilities                                                                                                                                                                                             |  |                                           | 207,716  |   |                   |   | 233,110  |  
|                                                                                                                                                                                                              |  |                                           |          |   |                   |   |          |  
|                                                                                                                                                                                                              |  |                                          
|Commitments, contingencies and guarantees (Note 11)                                                                                                                                                           |  |                                           |          |   |                   |   |          |  
|                                                                                                                                                                                                              |  |                                          
|Stockholders equity                                                                                                                                                                                          |  |                                           |          |   |                   |   |          |  
|Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued or outstanding                                                                                                                     |  |                                           |         |   |                   |   |         |  
|Common stock, $0.01 par value; 150,000,000 shares authorized; 93,349,120 shares issued and 71,633,290 outstanding at June 27, 2008;
92,716,665 shares issued and 75,752,315 outstanding at September 28, 2007 |  |                                           | 933      |   |                   |   | 927      |  
|Capital in excess of par value                                                                                                                                                                                |  |                                           | 572,179  |   |                   |   | 548,426  |  
|Less: Cost of 21,715,830 and 16,964,350 shares of common stock held in treasury at June 27, 2008 and September 28, 2007,
respectively                                                                         |  |                                           | (714,877 | ) |                   |   | (535,423 | )
|Retained earnings                                                                                                                                                                                             |  |                                           | 647,562  |   |                   |   | 553,221  |  
|Accumulated other comprehensive loss                                                                                                                                                                          |  |                                           | (1,189   | ) |                   |   | (1,173   | )
|                                                                                                                                                                                                              |  |                                           |          |   |                   |   |          |  
|Total stockholders equity                                                                                                                                                                                    |  |                                           | 504,608  |   |                   |   | 565,978  |  
|                                                                                                                                                                                                              |  |                                           |          |   |                   |   |          |  
|Total liabilities and stockholders equity                                                                                                                                                                    |  | $                                         | 712,324  |   |                   | $ | 799,088  |  
|                                                                                                                                                                                                              |  |                                           |          |   |                   |   |          |  

The accompanying notes to the unaudited consolidated financial statements are an integral part of these
statements.



1



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VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME



|                                            |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|------------------------------------------- |  | --------------------------------------------- | ------- | - | ------------------------ | - | ------- | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                            |  | Fiscal Three Months Ended                     |         |   | Fiscal Nine Months Ended |  
|                                            |  | June 27,2008                                  |         |   | June 29,2007             |   |         | June 27,2008 |  |   | June 29,2007 |  
|                                            |  | (Amounts in thousands, except per share data) |        
|Revenue                                     |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|Product                                     |  | $                                             | 159,283 |   |                          | $ | 264,253 |              |  | $ | 629,755      |   |  | $ | 686,466 |  
|Service                                     |  |                                               | 23,307  |   |                          |   | 21,940  |              |  |   | 62,183       |   |  |   | 63,112  |  
|Royalty and license                         |  |                                               | 13      |   |                          |   | 2,565   |              |  |   | 59           |   |  |   | 6,607   |  
|                                            |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|Total revenue                               |  |                                               | 182,603 |   |                          |   | 288,758 |              |  |   | 691,997      |   |  |   | 756,185 |  
|                                            |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|                                            |  |                                               |         |  
|Cost of revenue                             |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|Product                                     |  |                                               | 80,694  |   |                          |   | 139,736 |              |  |   | 321,740      |   |  |   | 369,240 |  
|Service                                     |  |                                               | 13,972  |   |                          |   | 13,287  |              |  |   | 38,871       |   |  |   | 39,913  |  
|                                            |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|Total cost of revenue                       |  |                                               | 94,666  |   |                          |   | 153,023 |              |  |   | 360,611      |   |  |   | 409,153 |  
|                                            |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|Gross profit                                |  |                                               | 87,937  |   |                          |   | 135,735 |              |  |   | 331,386      |   |  |   | 347,032 |  
|                                            |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|                                            |  |                                               |         |  
|Operating expenses                          |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|Research and development                    |  |                                               | 27,187  |   |                          |   | 26,267  |              |  |   | 84,469       |   |  |   | 76,046  |  
|Marketing, general and administrative       |  |                                               | 32,116  |   |                          |   | 31,498  |              |  |   | 97,517       |   |  |   | 94,524  |  
|Restructuring                               |  |                                               | 646     |   |                          |   |        |              |  |   | 646          |   |  |   |        |  
|                                            |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|Total operating expenses                    |  |                                               | 59,949  |   |                          |   | 57,765  |              |  |   | 182,632      |   |  |   | 170,570 |  
|                                            |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|Operating income                            |  |                                               | 27,988  |   |                          |   | 77,970  |              |  |   | 148,754      |   |  |   | 176,462 |  
|Interest income                             |  |                                               | 2,056   |   |                          |   | 4,691   |              |  |   | 7,596        |   |  |   | 16,647  |  
|Interest expense                            |  |                                               | (283    | ) |                          |   | (191    | )            |  |   | (960         | ) |  |   | (728    | )
|Other income (expense), net                 |  |                                               | 179     |   |                          |   | (292    | )            |  |   | 272          |   |  |   | 401     |  
|                                            |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|Income before income taxes                  |  |                                               | 29,940  |   |                          |   | 82,178  |              |  |   | 155,662      |   |  |   | 192,782 |  
|Provision for income taxes                  |  |                                               | 11,616  |   |                          |   | 58,792  |              |  |   | 59,617       |   |  |   | 93,981  |  
|                                            |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|Net income                                  |  | $                                             | 18,324  |   |                          | $ | 23,386  |              |  | $ | 96,045       |   |  | $ | 98,801  |  
|                                            |  |                                               |         |   |                          |   |         |              |  |   |              |   |  |   |         |  
|Weighted average shares outstandingbasic   |  |                                               | 72,606  |   |                          |   | 79,052  |              |  |   | 73,881       |   |  |   | 81,392  |  
|Weighted average shares outstandingdiluted |  |                                               | 73,879  |   |                          |   | 81,116  |              |  |   | 75,339       |   |  |   | 83,297  |  
|Net income per share - basic                |  | $                                             | 0.25    |   |                          | $ | 0.30    |              |  | $ | 1.30         |   |  | $ | 1.21    |  
|Net income per share - diluted              |  | $                                             | 0.25    |   |                          | $ | 0.29    |              |  | $ | 1.27         |   |  | $ | 1.19    |  

The accompanying notes to the unaudited consolidated financial statements are an integral part of these
statements.



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VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                                                 |  |                          |          |   |              |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ------------ | - | -------- | -
|                                                                                                                                 |  | Fiscal Nine Months Ended |         
|                                                                                                                                 |  | June 27,2008             |          |   | June 29,2007 |  
|                                                                                                                                 |  | (Amounts in thousands)   |         
|Cash flows from operating activities:                                                                                            |  |                          |          |   |              |   |          |  
|Net income                                                                                                                       |  | $                        | 96,045   |   |              | $ | 98,801   |  
|Adjustments to reconcile net income to net cash provided by operating activities:                                                |  |                          |          |   |              |   |          |  
|Depreciation and amortization                                                                                                    |  |                          | 12,605   |   |              |   | 10,526   |  
|Amortization of investment premium                                                                                               |  |                          | 267      |   |              |   | 21       |  
|Deferred income taxes                                                                                                            |  |                          | (7,654   | ) |              |   | (928     | )
|Stock-based compensation                                                                                                         |  |                          | 16,147   |   |              |   | 15,531   |  
|Tax benefit from stock-based compensation                                                                                        |  |                          | 2,458    |   |              |   | 11,904   |  
|Excess tax benefits from stock-based compensation                                                                                |  |                          | (2,293   | ) |              |   | (8,597   | )
|Changes in assets and liabilities:                                                                                               |  |                          |          |   |              |   |          |  
|Accounts receivable                                                                                                              |  |                          | 39,248   |   |              |   | (57,793  | )
|Inventories                                                                                                                      |  |                          | 4,175    |   |              |   | (67,109  | )
|Other current assets                                                                                                             |  |                          | 7,822    |   |              |   | (1,786   | )
|Accounts payable                                                                                                                 |  |                          | (19,063  | ) |              |   | 8,549    |  
|Accrued expenses                                                                                                                 |  |                          | 13,478   |   |              |   | 26,257   |  
|Product warranty                                                                                                                 |  |                          | (2,699   | ) |              |   | 2,382    |  
|Deferred revenue                                                                                                                 |  |                          | (19,463  | ) |              |   | 46,072   |  
|Other                                                                                                                            |  |                          | (735     | ) |              |   | (661     | )
|                                                                                                                                 |  |                          |          |   |              |   |          |  
|Net cash provided by operating activities                                                                                        |  |                          | 140,338  |   |              |   | 83,169   |  
|                                                                                                                                 |  |                          |          |   |              |   |          |  
|                                                                                                                                 |  |                         
|Cash flows from investing activities:                                                                                            |  |                          |          |   |              |   |          |  
|Purchase of property, plant and equipment                                                                                        |  |                          | (7,591   | ) |              |   | (8,261   | )
|Proceeds from sales of investments                                                                                               |  |                          | 7,578    |   |              |   | 22,194   |  
|Proceeds from maturities of investments                                                                                          |  |                          | 115,542  |   |              |   | 142,980  |  
|Purchase of investments                                                                                                          |  |                          | (70,596  | ) |              |   | (88,831  | )
|                                                                                                                                 |  |                          |          |   |              |   |          |  
|Net cash provided by investing activities                                                                                        |  |                          | 44,933   |   |              |   | 68,082   |  
|                                                                                                                                 |  |                          |          |   |              |   |          |  
|                                                                                                                                 |  |                         
|Cash flows from financing activities:                                                                                            |  |                          |          |   |              |   |          |  
|Proceeds from the issuance of common stock upon exercise of options and issuance of stock under the employee stock purchase
plan |  |                          | 5,154    |   |              |   | 40,003   |  
|Excess tax benefits from stock-based compensation                                                                                |  |                          | 2,293    |   |              |   | 8,597    |  
|Repurchase of common stock                                                                                                       |  |                          | (179,454 | ) |              |   | (301,267 | )
|Repayment of long-term debt                                                                                                      |  |                          | (316     | ) |              |   | (346     | )
|                                                                                                                                 |  |                          |          |   |              |   |          |  
|Net cash used in financing activities                                                                                            |  |                          | (172,323 | ) |              |   | (253,013 | )
|                                                                                                                                 |  |                          |          |   |              |   |          |  
|                                                                                                                                 |  |                         
|Effects of exchange rates on cash                                                                                                |  |                          | (1,331   | ) |              |   | 506      |  
|                                                                                                                                 |  |                          |          |   |              |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                                             |  |                          | 11,617   |   |              |   | (101,256 | )
|Cash and cash equivalents at beginning of period                                                                                 |  |                          | 109,514  |   |              |   | 258,891  |  
|                                                                                                                                 |  |                          |          |   |              |   |          |  
|Cash and cash equivalents at end of period                                                                                       |  | $                        | 121,131  |   |              | $ | 157,635  |  
|                                                                                                                                 |  |                          |          |   |              |   |          |  

The accompanying notes to the unaudited consolidated financial statements are an integral part of these
statements.



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VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Description of Business and Basis of Presentation

Varian Semiconductor Equipment Associates, Inc. (Varian
Semiconductor) designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits to customers located both in the United States (U.S.) and in international markets.

The accompanying unaudited interim consolidated financial statements have been prepared by Varian Semiconductor in accordance with accounting principles
generally accepted in the U.S. (GAAP) for interim financial information and pursuant to the instruction to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the SEC). Certain information
and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited interim consolidated financial statements should be read in
conjunction with the financial statements and the related notes thereto included in the annual report on Form 10-K filed by Varian Semiconductor with the SEC on November 21, 2007 for the fiscal year ended September 28, 2007. In the opinion
of management, the unaudited interim consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the information required to be set forth therein. The results of operations
for the three and nine months ended June 27, 2008 are not necessarily indicative of the results to be expected for a full year or for any other period.

Note 2. Stock-Based Compensation

Varian Semiconductor applies the provisions of Statement of Financial Accounting Standards
(SFAS) No. 123(R), Share Based Payment. SFAS No. 123(R) establishes accounting for stock-based awards exchanged for employee and director services. Stock-based compensation cost is measured at grant date and based on the
fair value of the award. The straight-line method is applied to all grants with service conditions, while the graded vesting method is applied to all grants with both service and performance conditions.

The effect of recording stock-based compensation for the three and nine months ended June 27, 2008 and June 29, 2007 was as follows:



|                                                           |  |                                                 |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|---------------------------------------------------------- |  | ----------------------------------------------- | ------ | - | ------------------------ | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                                           |  | Fiscal Three Months Ended                       |        |   | Fiscal Nine Months Ended |  
|                                                           |  | June 27,2008                                    |        |   | June 29,2007             |   |        | June 27,2008 |  |   | June 29,2007 |  
|                                                           |  | (Amounts in thousands except per share amounts) |       
|Stock-based compensation expense by type of award:         |  |                                                 |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Stock options                                              |  | $                                               | 2,662  |   |                          | $ | 2,563  |              |  | $ | 7,209        |   |  | $ | 8,012  |  
|Restricted stock                                           |  |                                                 | 2,323  |   |                          |   | 2,344  |              |  |   | 7,970        |   |  |   | 6,770  |  
|Employee Stock Purchase Plan                               |  |                                                 | 348    |   |                          |   | 231    |              |  |   | 968          |   |  |   | 749    |  
|                                                           |  |                                                 |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Total stock-based compensation                             |  |                                                 | 5,333  |   |                          |   | 5,138  |              |  |   | 16,147       |   |  |   | 15,531 |  
|Less: Tax effect on stock-based compensation               |  |                                                 | (2,234 | ) |                          |   | (4,252 | )            |  |   | (6,468       | ) |  |   | (7,571 | )
|                                                           |  |                                                 |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Net effect on income                                       |  | $                                               | 3,099  |   |                          | $ | 886    |              |  | $ | 9,679        |   |  | $ | 7,960  |  
|                                                           |  |                                                 |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Effect on earnings per share:                              |  |                                                 |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Basic                                                      |  | $                                               | 0.04   |   |                          | $ | 0.01   |              |  | $ | 0.13         |   |  | $ | 0.10   |  
|Diluted                                                    |  | $                                               | 0.04   |   |                          | $ | 0.01   |              |  | $ | 0.13         |   |  | $ | 0.10   |  
|                                                           |  |                                                 |        |  
|Effect of stock-based compensation on income by line item: |  |                                                 |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Cost of product revenue                                    |  | $                                               | 264    |   |                          | $ | 340    |              |  | $ | 746          |   |  | $ | 1,072  |  
|Cost of service revenue                                    |  |                                                 | 255    |   |                          |   | 297    |              |  |   | 763          |   |  |   | 842    |  
|Research and development expense                           |  |                                                 | 1,151  |   |                          |   | 1,001  |              |  |   | 3,351        |   |  |   | 2,963  |  
|Marketing, general and administrative expense              |  |                                                 | 3,663  |   |                          |   | 3,500  |              |  |   | 11,287       |   |  |   | 10,654 |  
|Provision for income taxes                                 |  |                                                 | (2,234 | ) |                          |   | (4,252 | )            |  |   | (6,468       | ) |  |   | (7,571 | )
|                                                           |  |                                                 |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Total cost related to stock-based compensation             |  | $                                               | 3,099  |   |                          | $ | 886    |              |  | $ | 9,679        |   |  | $ | 7,960  |  
|                                                           |  |                                                 |        |   |                          |   |        |              |  |   |              |   |  |   |        |  



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##### Table of Contents

Varian Semiconductor estimates the fair value of stock options using the Black-Scholes valuation model. Key input
assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the risk-free interest rate over the options expected term, the expected annual dividend yield and the expected
stock price volatility. Varian Semiconductor has determined that a blended volatility, using Varian Semiconductors historical and implied volatility measures and a peer group implied volatility, best reflects expected volatility over the
expected term of the option. Varian Semiconductor believes that the approach utilized to develop the underlying assumptions is appropriate in calculating the fair values of Varian Semiconductors stock options granted. Estimates of fair value
are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. As of June 27, 2008, there were a total of 7,857,654 shares of common stock reserved for issuance under the 2006 Stock
Incentive Plan.

The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following
assumptions:



|                                       |  |                          |       |   |              |   |       |  
|-------------------------------------- |  | ------------------------ | ----- | - | ------------ | - | ----- | -
|                                       |  | Fiscal Nine Months Ended |      
|                                       |  | June 27,2008             |       |   | June 29,2007 |  
|Expected life (in years)               |  |                          | 3.6   |   |              |   | 4.0   |  
|Expected volatility                    |  |                          | 45.8  | % |              |   | 38.2  | %
|Risk-free interest rate                |  |                          | 3.1   | % |              |   | 4.8   | %
|Expected dividend yield                |  |                          | 0.0   | % |              |   | 0.0   | %
|Weighted-average grant date fair value |  | $                        | 13.63 |   |              | $ | 11.03 |  

The following table summarizes the stock option and restricted stock activity as of and for the nine months ended
June 27, 2008:



|                                                     |  |                       |   |                                   |                               |       |                                          |     |                         |   |        |  |           |                                     |  |   |      
|---------------------------------------------------- |  | --------------------- | - | --------------------------------- | ----------------------------- | ----- | ---------------------------------------- | --- | ----------------------- | - | ------ |  | --------- | ----------------------------------- |  | - | -----
|                                                     |  | Stock Option Activity |   | Unvested RestrictedStock Activity
|                                                     |  | Shares                |   |                                   | Weighted-AverageExercisePrice |       | Weighted-AverageRemainingContractualTerm |     | AggregateIntrinsicValue |   | Shares |  |           | Weighted-AverageGrantDate FairValue
|                                                     |  |                       |   |                                   |                               |       | (In years)                               |     | (In thousands)          |   |        |  |           |                                    
|Outstanding at September 28, 2007                    |  | 4,447,453             |   |                                   | $                             | 20.36 |                                          |     |                         |   |        |  | 1,074,513 |                                     |  | $ | 24.13
|Granted                                              |  | 862,190               |   |                                   |                               | 37.42 |                                          |     |                         |   |        |  | 239,770   |                                     |  |   | 38.52
|Options exercised                                    |  | (217,517              | ) |                                   |                               | 16.05 |                                          |     |                         |   |        |  |           |                                     |  |   |      
|Vesting of restricted stock                          |  |                       |   |                                   |                               |       |                                          |     |                         |   |        |  | (354,295  | )                                   |  |   | 22.90
|Forfeited/expired/cancelled                          |  | (78,538               | ) |                                   |                               | 28.75 |                                          |     |                         |   |        |  | (34,444   | )                                   |  |   | 23.55
|                                                     |  |                       |   |                                   |                               |       |                                          |     |                         |   |        |  |           |                                     |  |   |      
|Outstanding at June 27, 2008                         |  | 5,013,588             |   |                                   |                               | 23.35 |                                          | 4.5 |                         | $ | 67,254 |  | 925,544   |                                     |  | $ | 28.35
|                                                     |  |                       |   |                                   |                               |       |                                          |     |                         |   |        |  |           |                                     |  |   |      
|Options vested and expected to vest at June 27, 2008 |  | 4,880,469             |   |                                   |                               | 23.06 |                                          | 4.5 |                         | $ | 66,667 |  |           |                                     |  |   |      
|Options exercisable at June 27, 2008                 |  | 2,821,900             |   |                                   | $                             | 16.88 |                                          | 3.5 |                         | $ | 53,045 |  |           |                                     |  |   |      

During the three months ended June 27, 2008, Varian Semiconductor awarded 2,500 restricted stock units and no
restricted stock units were released. During the nine months ended June 27, 2008, Varian Semiconductor awarded 12,500 restricted stock units and 7,712 restricted stock units were released. The number of restricted stock units outstanding as of
June 27, 2008 was 39,492.

As of June 27, 2008, the unrecognized compensation cost related to unvested stock options was $24.3 million before
estimated forfeitures. This unrecognized balance will be recognized over an estimated weighted average amortization period of 2.8 years.

As of
June 27, 2008, the unrecognized compensation cost related to unvested restricted stock was $24.5 million before estimated forfeitures. This unrecognized balance will be recognized over an estimated weighted average amortization period of 2.5
years.



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##### Table of Contents

The total intrinsic value of options exercised during the three and nine month periods ended June 27, 2008 was $1.4
million and $4.4 million, respectively. The total intrinsic value of options exercised during the three and nine month periods ended June 29, 2007 was $13.7 million and $38.6 million, respectively. Intrinsic value is defined as the difference
between the market price on the date of exercise and the grant date price.

The total fair value of restricted stock grants that vested during the three
and nine month periods ended June 27, 2008 was $3.5 million and $13.7 million, respectively. The total fair value of restricted stock grants that vested during the three and nine month periods ended June 29, 2007 was $7.0 million and $10.4
million, respectively.

Employee Stock Purchase Plan

Employees of Varian Semiconductor, who elect to participate in the Employee Stock Purchase Plan (ESPP), are able to purchase common stock at the lower of 85% of the fair market value of Varian Semiconductors common stock
on the first or last day of the applicable offering period. Typically, each offering period lasts six months. There were 52,931 shares purchased under the ESPP during the nine months ended June 27, 2008. As of June 27, 2008 there were a
total of 993,610 shares of common stock reserved for issuance under the ESPP. The fair value of shares issued under the ESPP was estimated on the commencement date of each offering period using the Black-Scholes option-pricing model with the
following assumptions:



|                                       |  |                          |       |   |              |   |      |  
|-------------------------------------- |  | ------------------------ | ----- | - | ------------ | - | ---- | -
|                                       |  | Fiscal Nine Months Ended |      
|                                       |  | June 27,2008             |       |   | June 29,2007 |  
|Expected life (in years)               |  |                          | 0.5   |   |              |   | 0.5  |  
|Expected volatility                    |  |                          | 57.3  | % |              |   | 41.5 | %
|Risk-free interest rate                |  |                          | 3.3   | % |              |   | 5.1  | %
|Expected dividend yield                |  |                          | 0.0   | % |              |   | 0.0  | %
|Weighted-average grant date fair value |  | $                        | 11.22 |   |              | $ | 8.20 |  

Note 3. Computation of Net Income Per Share

Basic net income per share is calculated based on net income and the weighted average number of shares of common stock outstanding during the reporting period. Diluted net income per share includes additional dilution
from stock issuable pursuant to the exercise of stock options outstanding and unvested restricted stock. Options to purchase common shares with exercise prices that exceeded the market value of the underlying common stock are excluded from the
computation of diluted earnings per share, as these options are anti-dilutive. For purposes of the diluted net income per share calculation, the additional shares issuable upon exercise of stock options are determined using the treasury stock method
which, as required by SFAS No. 123(R), includes as assumed proceeds share-based compensation expense and the tax effect of such compensation.

A
reconciliation of the numerator and denominator used in the net income per share calculations is presented as follows:



|                                             |  |                                               |        |                          |   |              |  |              |        |  |   |       
|-------------------------------------------- |  | --------------------------------------------- | ------ | ------------------------ | - | ------------ |  | ------------ | ------ |  | - | ------
|                                             |  | Fiscal Three Months Ended                     |        | Fiscal Nine Months Ended
|                                             |  | June 27,2008                                  |        | June 29,2007             |   | June 27,2008 |  | June 29,2007
|                                             |  | (Amounts in thousands, except per share data)
|Numerator:                                   |  |                                               |        |                          |   |              |  |              |        |  |   |       
|Net income                                   |  | $                                             | 18,324 |                          | $ | 23,386       |  | $            | 96,045 |  | $ | 98,801
|                                             |  |                                               |        |                          |   |              |  |              |        |  |   |       
|Denominator:                                 |  |                                               |        |                          |   |              |  |              |        |  |   |       
|Denominator for basic net income per share:  |  |                                               |        |                          |   |              |  |              |        |  |   |       
|Weighted average shares outstanding          |  |                                               | 72,606 |                          |   | 79,052       |  |              | 73,881 |  |   | 81,392
|Effect of dilutive securities:               |  |                                               |        |                          |   |              |  |              |        |  |   |       
|Stock options and restricted stock           |  |                                               | 1,273  |                          |   | 2,064        |  |              | 1,458  |  |   | 1,905 
|                                             |  |                                               |        |                          |   |              |  |              |        |  |   |       
|Denominator for diluted net income per share |  |                                               | 73,879 |                          |   | 81,116       |  |              | 75,339 |  |   | 83,297
|                                             |  |                                               |        |                          |   |              |  |              |        |  |   |       
|Net income per share - basic                 |  | $                                             | 0.25   |                          | $ | 0.30         |  | $            | 1.30   |  | $ | 1.21  
|Net income per share - diluted               |  | $                                             | 0.25   |                          | $ | 0.29         |  | $            | 1.27   |  | $ | 1.19  



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##### Table of Contents

For the three and nine month periods ended June 27, 2008, 1.2 million and 0.9 million potentially dilutive
shares, respectively, were excluded from the computation of diluted earnings per share as the affect would be anti-dilutive. For the three and nine month periods ended June 29, 2007, 0.1 million and 0.5 million potentially dilutive
shares, respectively, were excluded from the computation of diluted earnings per share as the affect would be anti-dilutive.

Note 4. Accounts
Receivable

Accounts receivable consist of the following:



|                                |  |                        |         |   |                   |   |         |  
|------------------------------- |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                |  | June 27,2008           |         |   | September 28,2007 |  
|                                |  | (Amounts in thousands) |        
|Billed receivables              |  | $                      | 154,217 |   |                   | $ | 190,133 |  
|Allowance for doubtful accounts |  |                        | (639    | ) |                   |   | (560    | )
|                                |  |                        |         |   |                   |   |         |  
|Accounts receivable, net        |  | $                      | 153,578 |   |                   | $ | 189,573 |  
|                                |  |                        |         |   |                   |   |         |  

Note 5. Inventories

The components of inventories are as follows:



|                        |  |                        |         |                   |   |        
|----------------------- |  | ---------------------- | ------- | ----------------- | - | -------
|                        |  | June 27,2008           |         | September 28,2007
|                        |  | (Amounts in thousands)
|Raw materials and parts |  | $                      | 87,044  |                   | $ | 81,330 
|Work in process         |  |                        | 28,061  |                   |   | 41,539 
|Finished goods          |  |                        | 50,836  |                   |   | 47,424 
|                        |  |                        |         |                   |   |        
|Total inventories       |  | $                      | 165,941 |                   | $ | 170,293
|                        |  |                        |         |                   |   |        

Note 6. Accrued Expenses

The components of accrued expenses are as follows:



|                            |  |                        |        |                   |   |       
|--------------------------- |  | ---------------------- | ------ | ----------------- | - | ------
|                            |  | June 27,2008           |        | September 28,2007
|                            |  | (Amounts in thousands)
|Accrued incentives          |  | $                      | 12,901 |                   | $ | 18,103
|Accrued employee benefits   |  |                        | 11,280 |                   |   | 11,842
|Accrued payroll             |  |                        | 7,008  |                   |   | 5,356 
|Accrued retirement benefits |  |                        | 2,352  |                   |   | 5,121 
|Other                       |  |                        | 8,111  |                   |   | 10,056
|                            |  |                        |        |                   |   |       
|Total accrued expenses      |  | $                      | 41,652 |                   | $ | 50,478
|                            |  |                        |        |                   |   |       

Note 7. Long-Term Accrued Expenses and Other Long-Term Liabilities

There was $64.6 million in long-term accrued expenses and other long-term liabilities at June 27, 2008. Included in this amount was $38.9 million for long-term tax
liabilities. There was $53.9 million in long-term accrued expenses and other long-term liabilities at September 28, 2007, including $28.5 million for long-term tax liabilities. In addition, post-employment liabilities, environmental and other
costs not expected to be expended within the next year are included in long-term accrued expenses and other long-term liabilities. The current portion is recorded within accrued expenses.

Note 8. Product Warranties

Varian Semiconductor warrants that its
products will be free from defects in materials and workmanship and will conform to its standard published specifications in effect at the time of delivery for a period of three to twenty-four months from the date the customer accepts the products.
Additionally, Varian Semiconductor warrants that maintenance services will be performed in a workmanlike manner consistent with generally accepted industry standards for a period of 90 days from the completion of any agreed-upon services. Varian
Semiconductor provides for the estimated cost of product warranties, the amount of which is based primarily upon historical information, at the time product revenue is recognized. Varian Semiconductors warranty



7



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obligation is affected by a number of factors, including product failure rates, utilization levels, material usage, service delivery costs incurred in
correcting a product failure, and supplier warranties on parts delivered to Varian Semiconductor. Should these factors or other factors affecting warranty costs differ from Varian Semiconductors estimates, revisions to the estimated warranty
liability would be required.

Product warranty activity for the first three and nine months of fiscal years 2008 and 2007 was as follows:



|                                                 |  |                           |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|------------------------------------------------ |  | ------------------------- | ------ | - | ------------------------ | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                                 |  | Fiscal Three Months Ended |        |   | Fiscal Nine Months Ended |  
|                                                 |  | June 27,2008              |        |   | June 29,2007             |   |        | June 27,2008 |  |   | June 29,2007 |  
|                                                 |  | (Amounts in thousands)    |        |   | (Amounts in thousands)   |  
|Beginning product warranty balance               |  | $                         | 12,199 |   |                          | $ | 11,032 |              |  | $ | 12,979       |   |  | $ | 9,813  |  
|Accruals for warranties issued during the period |  |                           | 2,635  |   |                          |   | 4,702  |              |  |   | 9,419        |   |  |   | 11,790 |  
|Adjustments to pre-existing warranties           |  |                           | (752   | ) |                          |   | (235   | )            |  |   | (563         | ) |  |   | (704   | )
|Fulfillments during the period                   |  |                           | (3,643 | ) |                          |   | (3,299 | )            |  |   | (11,396      | ) |  |   | (8,699 | )
|                                                 |  |                           |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Ending product warranty balance                  |  | $                         | 10,439 |   |                          | $ | 12,200 |              |  | $ | 10,439       |   |  | $ | 12,200 |  
|                                                 |  |                           |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Current portion of product warranty              |  | $                         | 9,711  |   |                          | $ | 11,385 |              |  |   |              |   |  |   |        |  
|Long-term portion of product warranty            |  |                           | 728    |   |                          |   | 815    |              |  |   |              |   |  |   |        |  
|                                                 |  |                           |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Total product warranty liability                 |  | $                         | 10,439 |   |                          | $ | 12,200 |              |  |   |              |   |  |   |        |  
|                                                 |  |                           |        |   |                          |   |        |              |  |   |              |   |  |   |        |  

Note 9. Deferred Revenue

The components of deferred revenue are as follows:



|                                                            |  |                        |        |                   |   |       
|----------------------------------------------------------- |  | ---------------------- | ------ | ----------------- | - | ------
|                                                            |  | June 27,2008           |        | September 28,2007
|                                                            |  | (Amounts in thousands)
|Fully deferred systems, installation and acceptance revenue |  | $                      | 20,577 |                   | $ | 40,415
|Extended warranties                                         |  |                        | 16,160 |                   |   | 15,007
|Maintenance and service contracts                           |  |                        | 6,678  |                   |   | 7,341 
|Other deferred revenue                                      |  |                        | 756    |                   |   | 635   
|                                                            |  |                        |        |                   |   |       
|Total deferred revenue                                      |  | $                      | 44,171 |                   | $ | 63,398
|                                                            |  |                        |        |                   |   |       
|Current portion of deferred revenue                         |  | $                      | 37,255 |                   | $ | 54,742
|Long-term portion of deferred revenue                       |  |                        | 6,916  |                   |   | 8,656 
|                                                            |  |                        |        |                   |   |       
|Total deferred revenue                                      |  | $                      | 44,171 |                   | $ | 63,398
|                                                            |  |                        |        |                   |   |       

Note 10. Notes Payable

On May 23, 2008, Varian Semiconductor entered into a credit agreement with a financial institution providing for borrowings of a maximum principal amount of up to $100 million under an unsecured revolving credit facility. Amounts may
be borrowed, repaid and reborrowed from time to time during the five year commitment period ending May 23, 2013. Borrowings will bear interest at a rate per annum equal to either: (1) the greater of (a) the prime rate and (b) the
federal funds rate plus 0.50%; or (2) the sum of (a) LIBOR, with certain adjustments and (b) an applicable rate, defined in the credit agreement as a percentage spread based on Varian Semiconductors leverage ratio.

The credit agreement contains events of default and covenants. The credit facility is intended to provide ongoing working capital and cash for
acquisitions, stock repurchases, capital expenditures and other general corporate purposes. As of June 27, 2008, there were no outstanding borrowings under the credit agreement.

Note 11. Commitments, Contingencies and Guarantees

As permitted under Delaware law, Varian Semiconductor has
agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving in such capacity at the request of Varian



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Semiconductor. The term of the indemnification period is upon the later of (i) ten years after the person has ceased being an officer or director of
Varian Semiconductor, or (ii) the termination of all pending or threatened actions, suits, proceedings, or investigations. The maximum potential amount of future payments Varian Semiconductor could be required to make under these
indemnification agreements is unlimited; however, Varian Semiconductor has a Director and Officer insurance policy that limits its exposure and enables Varian Semiconductor to recover a portion of any future amounts paid. As a result of Varian
Semiconductors insurance policy coverage, management believes the estimated fair value of these indemnification agreements is minimal. Accordingly, Varian Semiconductor has not recorded any liabilities for these agreements as of June 27,
2008.

Varian Semiconductor enters into indemnification agreements in the normal course of business. Pursuant to these agreements, Varian Semiconductor
indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally Varian Semiconductor customers, in connection with any patent, or any copyright or other intellectual
property infringement claim by any third party with respect to Varian Semiconductor products. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future
payments Varian Semiconductor could be required to make under these indemnification agreements may be unlimited. Management believes the estimated fair value of these agreements is minimal. Accordingly, Varian Semiconductor has not recorded any
liabilities for these agreements as of June 27, 2008.

Varian Semiconductor also indemnifies certain customers with respect to damages, losses and
liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, and environmental claims relating to the use of Varian Semiconductors products and services or resulting from the acts or omissions
of Varian Semiconductor, its employees, officers, authorized agents or subcontractors. Varian Semiconductor has general and umbrella insurance policies that limit its exposure under these indemnification obligations and guarantees. As a result of
Varian Semiconductors insurance policy coverage, Varian Semiconductor believes the estimated fair value of these indemnification agreements is minimal. Accordingly, Varian Semiconductor has not recorded any liabilities for these agreements as
of June 27, 2008.

Prior to the spinoff of Varian Semiconductor from Varian Associates, Inc. (VAI), Varian Semiconductors
business was operated as the Semiconductor Equipment Business (SEB) of VAI. On April 2, 1999, VAI contributed its SEB to Varian Semiconductor, its Instruments Business to Varian, Inc. (VI), and changed its name to Varian
Medical Systems, Inc. (VMS). In connection with the spin-off from VAI, Varian Semiconductor, VMS and VI entered into certain agreements which include a Distribution Agreement, an Employee Benefits Allocation Agreement, an Intellectual
Property Agreement, a Tax Sharing Agreement, and a Transition Services Agreement (collectively, the Distribution Related Agreements) whereby Varian Semiconductor agreed to indemnify VMS and VI for any costs, liabilities or expenses
relating to Varian Semiconductors legal proceedings. Under the Distribution Related Agreements, Varian Semiconductor has agreed to reimburse VMS for one-third of the costs, liabilities, and expenses, adjusted for any related tax benefits
recognized or realized by VMS, with respect to certain legal proceedings relating to discontinued operations of VMS. Varian Semiconductor believes the estimated fair value of the indemnification agreements is minimal, except as already recorded on
the financial statements.

Varian Semiconductors operations are subject to various foreign, federal, state and/or local laws relating to the
protection of the environment. These include laws regarding discharges into soil, water and air, and the generation, handling, storage, transportation and disposal of waste and hazardous substances. In addition, several countries are reviewing
proposed regulations that would require manufacturers to dispose of their products at the end of a products useful life. These laws have the effect of increasing costs and potential liabilities associated with the conduct of certain
operations.

Varian Semiconductor also enters into purchase order commitments in the normal course of business. As of June 27, 2008, Varian
Semiconductor had approximately $48.3 million of purchase order commitments with various suppliers.

Environmental Remediation

VAI has been named by the United States Environmental Protection Agency and third parties as a potentially responsible party under the Comprehensive Environmental
Response Compensation and Liability Act of 1980, at eight sites where VAI is alleged to have shipped manufacturing waste for recycling or disposal. VAI is also involved in various stages of environmental investigation and/or remediation under the
direction of, or in consultation with, foreign, federal, state and/or local agencies at certain current or former VAI facilities (including facilities disposed of in connection with VAIs sale of its Electron Devices business during fiscal year
1995, and the sale of its Thin Film Systems business during fiscal year 1997). The Distribution Related Agreements provide that each of VMS, Varian Semiconductor and VI will indemnify the others for one-third of these environmental investigation and
remediation costs, as adjusted for any insurance proceeds and tax benefits expected to be realized upon payment of these costs.



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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. Varian Semiconductor has accrued $1.1 million in estimated environmental investigation and remediation costs for these sites and
facilities as of June 27, 2008. As to other sites and facilities, sufficient knowledge has been gained to be able to reasonably estimate the scope and costs of future environmental activities. As such, Varian Semiconductor has accrued $4.1
million as of June 27, 2008, which represents future costs discounted at 7%, net of inflation, to cover Varian Semiconductors portion of these costs. This reserve is in addition to the $1.1 million as of June 27, 2008 previously
described.

As of June 27, 2008, Varian Semiconductors environmental liability, based upon future environmental-related costs estimated by VMS
as of that date and included in current and long-term accrued expenses, totaled $5.2 million, of which $0.6 million is classified as current.

The amounts
set forth in the foregoing paragraph 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 and remediation activities and the large number of sites where VMS is undertaking such investigation and remediation activities. VMS believes that most of these cost ranges
will narrow as investigation and remediation activities progress. Varian Semiconductor believes that its reserves are adequate, but as the scope of the obligations becomes more clearly defined, these reserves may be modified and related charges
against income 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 Varian Semiconductors financial statements, the likelihood of such occurrence is considered remote. Based on information currently
available to management and its best assessment of the ultimate amount and timing of environmental-related events, Varian Semiconductors management believes that the costs of these environmental-related matters are not reasonably likely to
have a material adverse effect on the consolidated financial statements of Varian Semiconductor.

Varian Semiconductor evaluates its liability for
environmental-related investigation and remediation in light of the liability and financial strength of potentially responsible parties and insurance companies where Varian Semiconductor believes that it has rights to contribution, indemnity and/or
reimbursement. Claims for recovery of environmental investigation and remediation costs already incurred, and to be incurred in the future, have been asserted against various insurance companies and other third parties. VMS receives certain cash
payments in the form of settlements and judgments from defendants, its insurers and other third parties from time to time. VMS has also reached an agreement with an insurance company under which the insurance company agreed to pay a portion of
Varian Semiconductors past and future environmental-related expenditures. Accordingly, Varian Semiconductor has recorded a receivable for $1.0 million at each of June 27, 2008 and September 28, 2007 which was included in Other
assets in the Consolidated Balance Sheets. Varian Semiconductor believes that this receivable is recoverable because it is based on a binding, written settlement agreement with a solvent and financially viable insurance company and the
insurance company has in the past paid the claims that VMS has made.

Legal Proceedings

From time to time, in the ordinary course of business, Varian Semiconductor is a party to legal disputes related to employment and contract matters and could incur an
uninsured liability in one or more of them. While it is not possible to predict or determine the outcomes of the disputes, Varian Semiconductor believes the outcomes of such disputes will not have a material adverse effect on its consolidated
financial position, results of operations or cash flows.

Note 12. Derivative Financial Instruments

Varian Semiconductor uses derivative instruments to protect its interests from fluctuations in earnings and cash flows caused by volatility in currency exchange rates.
Varian Semiconductor has a policy of hedging its balance sheet and certain foreign currency sales exposures with hedging instruments having terms of up to twelve months.

Varian Semiconductors international sales are primarily denominated in U.S. dollars. For foreign currency denominated sales, however, the volatility of the foreign currency markets represents risk to Varian
Semiconductor. Upon forecasting the exposure, Varian Semiconductor enters into hedges with forward sales contracts for which critical terms are designed to match those of the underlying exposure. These hedges are evaluated for effectiveness at least
quarterly by comparing the change in value of the forward contracts to the change in value of the underlying transaction, with the effective portion of the hedge accumulated in other comprehensive income (OCI). Any measured
ineffectiveness is included immediately in other income and expense in the consolidated statements of income. There was an immaterial amount of ineffectiveness recognized during



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the three and nine month periods ended June 27, 2008. OCI associated with hedges of sales denominated in foreign currencies is reclassified to revenue
upon recognition in income of the underlying hedged exposure. The unrealized gain included in OCI associated with hedges of foreign currency denominated sales during the quarter ended June 27, 2008 was $0.3 million. There was no unrealized gain
or loss included in OCI associated with hedges of foreign currency denominated sales during the quarter ended September 28, 2007.

Note
13. Comprehensive Income

The following table reconciles net income to comprehensive income for the third quarter and first nine months of fiscal
years 2008 and 2007:



|                                                                                                                |  |                           |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ------------------------ | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | -
|                                                                                                                |  | Fiscal Three Months Ended |        |   | Fiscal Nine Months Ended |  
|                                                                                                                |  | June 27,2008              |        |   | June 29,2007             |   |        | June 27,2008 |  |   | June 29,2007 |  
|                                                                                                                |  | (Amounts in thousands)    |        |   | (Amounts in thousands)   |  
|Net income                                                                                                      |  | $                         | 18,324 |   |                          | $ | 23,386 |              |  | $ | 96,045       |   |  | $ | 98,801 |  
|Other comprehensive income (loss), net of (benefit) taxes:                                                      |  |                           |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Unrealized gain on cash flow hedging instruments                                                                |  |                           | 312    |   |                          |   | 200    |              |  |   | 512          |   |  |   | 579    |  
|Reclassification adjustment for realized gains (losses) on cash flow hedging instruments included in net income |  |                           | 65     |   |                          |   |       |              |  |   | (316         | ) |  |   | (693   | )
|Unrealized gain (loss) on investments                                                                           |  |                           | (298   | ) |                          |   | (69    | )            |  |   | (97          | ) |  |   | 610    |  
|Reclassification adjustment for realized (gains) losses on investments included in net income                   |  |                           | (16    | ) |                          |   | 2      |              |  |   | (115         | ) |  |   | 25     |  
|                                                                                                                |  |                           |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Other comprehensive income (loss)                                                                               |  | $                         | 63     |   |                          | $ | 133    |              |  | $ | (16          | ) |  | $ | 521    |  
|                                                                                                                |  |                           |        |   |                          |   |        |              |  |   |              |   |  |   |        |  
|Comprehensive income                                                                                            |  | $                         | 18,387 |   |                          | $ | 23,519 |              |  | $ | 96,029       |   |  | $ | 99,322 |  
|                                                                                                                |  |                           |        |   |                          |   |        |              |  |   |              |   |  |   |        |  

Note 14. Share Repurchase Program

On April 21, 2008, the Board of Directors voted to increase the amount of funds that may be expended in repurchasing Varian Semiconductors common stock from $700 million to $800 million. The program does
not have a fixed expiration date.

Share repurchases under this program during the third quarter and first nine months of fiscal years 2008 and 2007 were
as follows:



|                                             |  |                                                |           |                          |   |              |  |              |           |  |   |          
|-------------------------------------------- |  | ---------------------------------------------- | --------- | ------------------------ | - | ------------ |  | ------------ | --------- |  | - | ---------
|                                             |  | Fiscal Three Months Ended                      |           | Fiscal Nine Months Ended
|                                             |  | June 27,2008                                   |           | June 29,2007             |   | June 27,2008 |  | June 29,2007
|                                             |  | Dollars in thousands, except per share amounts
|Number of shares of common stock repurchased |  |                                                | 2,073,797 |                          |   | 3,917,094    |  |              | 4,751,480 |  |   | 8,709,015
|Total cost of repurchase                     |  | $                                              | 75,092    |                          | $ | 157,465      |  | $            | 179,454   |  | $ | 301,266  
|Average price paid per share                 |  | $                                              | 36.18     |                          | $ | 40.18        |  | $            | 37.74     |  | $ | 34.57    

Varian Semiconductor has repurchased an aggregate of 21,715,830 shares of its common stock through June 27,
2008 pursuant to this repurchase program since its inception in October 2004. As of June 27, 2008, there was a total of $85.6 million remaining under this repurchase program.

Note 15. Operating Segments and Geographic Information

Varian Semiconductor has determined that it operates in one
business segment: the manufacturing, marketing and servicing of semiconductor processing equipment for ion implantation systems. Since Varian Semiconductor operates in one segment, all financial segment information required by SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, can be found in the consolidated financial statements.



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Varian Semiconductor expects that sales of its products to relatively few customers will continue to account for a high
percentage of its revenue in the foreseeable future. In the third quarter of fiscal year 2008, revenue from two customers each accounted for 18% of Varian Semiconductors total revenue. In the third quarter of fiscal year 2007, revenue from
three customers accounted for 17%, 16% and 13%, respectively, of Varian Semiconductors total revenue. During the first nine months of fiscal year 2008, revenue from three customers accounted for 18%, 11% and 11% respectively, of Varian
Semiconductors total revenue. During the first nine months of fiscal year 2007, revenue from one customer accounted for 17% of Varian Semiconductors total revenue.

As of June 27, 2008 two customers represented 19% and 12% respectively, of the total accounts receivable balance. As of September 28, 2007, one customer accounted for 15% of the total accounts receivable
balance.

The following table summarizes revenue based on final geographic destination and long-lived assets by geography:



|                               |  |                        |         |        |   |        |  |        |        |       |   |           |  |       |         |              |   |        |  |   |        |  |   |        
|------------------------------ |  | ---------------------- | ------- | ------ | - | ------ |  | ------ | ------ | ----- | - | --------- |  | ----- | ------- | ------------ | - | ------ |  | - | ------ |  | - | -------
|                               |  | U.S.                   |         | Europe |   | Japan  |  | Taiwan |        | Korea |   | Singapore |  | Other |         | Consolidated
|                               |  | (Amounts in thousands)
|Revenue  Three months ended:  |  |                        |         |        |   |        |  |        |        |       |   |           |  |       |         |              |   |        |  |   |        |  |   |        
|June 27, 2008                  |  | $                      | 37,672  |        | $ | 21,822 |  | $      | 12,798 |       | $ | 34,789    |  | $     | 41,847  |              | $ | 29,498 |  | $ | 4,177  |  | $ | 182,603
|June 29, 2007                  |  |                        | 47,096  |        |   | 9,279  |  |        | 13,366 |       |   | 89,482    |  |       | 63,338  |              |   | 8,835  |  |   | 57,362 |  |   | 288,758
|                               |  |                        |         |        |   |        |  |       
|Revenue  Nine months ended:   |  |                        |         |        |   |        |  |        |        |       |   |           |  |       |         |              |   |        |  |   |        |  |   |        
|June 27, 2008                  |  | $                      | 151,600 |        | $ | 43,510 |  | $      | 44,604 |       | $ | 237,465   |  | $     | 128,439 |              | $ | 46,405 |  | $ | 39,974 |  | $ | 691,997
|June 29, 2007                  |  |                        | 168,405 |        |   | 40,752 |  |        | 48,575 |       |   | 191,872   |  |       | 182,240 |              |   | 34,612 |  |   | 89,729 |  |   | 756,185
|                               |  |                        |         |        |   |        |  |       
|Long-lived assets, net, as of: |  |                        |         |        |   |        |  |        |        |       |   |           |  |       |         |              |   |        |  |   |        |  |   |        
|June 27, 2008                  |  | $                      | 64,997  |        | $ | 431    |  | $      | 314    |       | $ | 567       |  | $     | 7,173   |              | $ | 240    |  | $ | 130    |  | $ | 73,852 
|September 28, 2007             |  |                        | 68,193  |        |   | 403    |  |        | 402    |       |   | 430       |  |       | 8,989   |              |   | 269    |  |   | 168    |  |   | 78,854 

Note 16. Income Taxes

Varian Semiconductors effective tax rate is based on its current profitability outlook and its expectations of earnings from operations in the U.S. and other tax jurisdictions throughout the world.

In fiscal 2007 Varian Semiconductor implemented a plan to realign the legal entities within its worldwide affiliated group. The objective of this realignment was to make
its legal structure more consistent with the geographic mix of its customers and suppliers. In effecting this realignment, Varian Semiconductor has established operations in Switzerland that will provide operational and financial services to all of
its international locations.

Varian Semiconductors effective income tax rate was a provision of 38.3% for the first nine months of fiscal year 2008
and a provision of 48.7% for the same period in fiscal year 2007. The 2008 provision included a discrete net benefit of $2.1 million related to a Swiss net operating loss and favorable tax return adjustments, offset by FIN 48 interest accrual,
various charges related to the legal realignment, and other discrete items. The discrete income tax benefit received in the first nine months of fiscal year 2008 reduced the effective tax rate by approximately 1.4 percentage points. For the same
period of fiscal year 2007, Varian Semiconductors income tax expense included tax charges related to the realignment and a discrete net benefit of $2.2 million related primarily to the reinstatement of the research and development tax credit
retroactive to January 1, 2006. The discrete income tax benefit recorded in the first nine months of fiscal year 2007 reduced the effective tax rate by approximately 1.2 percentage points. The realignment of Varian Semiconductors entities
has caused the tax rate to become more sensitive to the geographic distribution of profits. The 2007 provision was impacted by ongoing tax charges related to Varian Semiconductors announcement in June 2007 that it has begun implementing a plan
to improve the alignment of its legal entity structure. The effective tax rate in both fiscal year 2008 and fiscal year 2007 is higher than the U.S. federal statutory rate principally due to tax charges to implement the new structure, which are
expected to decrease over time, and an increase in reserves for unrecognized tax benefits. Future tax rates may vary from the historic rates depending on the worldwide composition of earnings and the continuing availability of income tax credits as
well as the potential resolution of reserves for unrecognized tax benefits.

Varian Semiconductor adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48) on September 29, 2007. FIN 48



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clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASB Statement
No. 109, Accounting for Income Taxes. This interpretation prescribes the recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Upon adoption of FIN 48, Varian Semiconductor increased the liability for net unrecognized
tax benefits by $1.7 million, and accounted for the increase as a cumulative effect of change in accounting principle that resulted in a reduction in retained earnings of $1.7 million at September 29, 2007. Varian Semiconductor also
reclassified $4.0 million of current income taxes payable to long-term income taxes payable and $1.3 million of long-term income taxes payable to non-current deferred tax assets.

As of September 29, 2007, the total gross unrecognized tax benefits related to various federal, state and foreign income tax matters was $40.8 million. Of this amount, the amount that would impact the effective
tax rate, if recognized, was $38.5 million. The difference between the total amount of unrecognized tax benefits and the amount that would impact the effective tax rate consists of items that are offset by deferred tax assets of $2.3 million, of
which $0.9 million relates to state tax credits which are fully offset by a valuation allowance.

The net increase in the reserve for unrecognized tax
benefits during the first nine months of fiscal 2008 was $8.2 million for positions taken in the current year. Of this amount, approximately $2.3 million represents the increase for the third quarter of fiscal year 2008. As of June 27, 2008,
the total amount of unrecognized tax benefits was $49 million, of which $44.7 million would impact the effective tax rate, if recognized. The difference between the total mount of unrecognized tax benefits and the amount that would impact the
effective rate consists of items that are offset by deferred tax assets, $2.9 million of which relate to state tax credits which are fully offset by a valuation allowance. Varian Semiconductor anticipates a ratable increase in unrecognized tax
benefits during the remainder of the fiscal year ending October 3, 2008. Varian Semiconductor will reexamine the tax provision and the effect of estimated unrecognized tax benefits on its financial position at the end of each reporting period.

In the normal course of business, Varian Semiconductor and its subsidiaries are examined by various federal, state and foreign tax authorities, including
the Internal Revenue Service (IRS). Varian Semiconductor is subject to audit by the IRS and various state and foreign authorities for the fiscal years 2003 through 2007. The IRS recently concluded an examination of certain refund claims,
primarily related to the extraterritorial income exclusion, filed by Varian Semiconductor for fiscal years 2000 through 2004. The IRS issued a notice of disallowance relating to a portion of these claims, and Varian Semiconductor filed a formal
protest with the Appeals Office of the IRS. It is unlikely that agreement on these claims will be reached within the next twelve months. The favorable resolution of these claims could result in a benefit to the tax provision in the range of $0 to
$5.8 million. Final agreement could reduce the amount of unrecognized tax benefits by approximately $5.8 million.

Varian Semiconductor is awaiting a final
ruling from the Swiss tax authorities. If granted, the ruling will result in a tax holiday and other tax incentives which may benefit Varian Semiconductors effective tax rate over the long term. Although Varian Semiconductor anticipates
realizing a lower future tax rate from this incentive, receipt of the ruling will cause a discrete income tax charge of approximately $1.1 million in the period received to write down the deferred tax asset related to the initial Swiss losses. These
losses were initially benefited at the statutory rate and a charge will be necessary to write them down to the incentive rate. If made, this charge will also result in a change to the projected effective tax rate for the full year. Furthermore,
Varian Semiconductor is finalizing an in-depth study of its research and development credit for fiscal years 2005 and 2006, and intends to file amended refund claims for the incremental credit. A favorable discrete income tax benefit may be recorded
in the period the study is complete and the benefit, if any, can be estimated.

As of September 29, 2007, Varian Semiconductor had accrued $1.7
million of interest and penalties related to unrecognized tax benefits. As of June 27, 2008, the total amount of accrued interest and penalties was $2.8 million. Varian Semiconductor includes interest and penalties related to unrecognized tax
benefits within its provision for income taxes.

Note 17. Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair
value in accordance with GAAP, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current
practice. This statement will be effective for Varian Semiconductors fiscal year 2009. Varian Semiconductor is in the process of evaluating the impact of this statement on its financial statements.



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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement No. 115. This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair
value. The decision to measure items at fair value can be made on an instrument-by-instrument basis, but once the decision is made, it is permanent. This statement will be effective for Varian Semiconductors fiscal year 2009. Varian
Semiconductor is in the process of evaluating the impact of this statement on its financial statements.

In February 2008, the FASB adopted FASB Staff
Position SFAS No. 157-2, Effective Date of FASB Statement No. 157 delaying the effective date of SFAS No. 157 for one year for all non financial assets and non financial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at least annually). Varian Semiconductor is currently evaluating the impact of the implementation of SFAS No. 157 on its financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. This statement requires enhanced
disclosure requirements for derivative instruments and hedging activities including how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133, and how derivative
instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. This statement will be effective for Varian Semiconductors fiscal year 2010. Varian Semiconductor is in the process of
evaluating the impact of this statement on its financial statements.



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
|------- | ---------------------------------------------------------------------------------------

This Form 10-Q contains certain forward-looking statements. For purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995, any statements using the terms believes,
anticipates, expects, plans or similar expressions are forward-looking statements. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those
projected. There are a number of important factors that could cause Varian Semiconductor Equipment Associates, Inc. (Varian Semiconductor)s actual results to differ materially from those indicated by forward-looking statements made
in this report and presented by management from time to time. Some of the important risks and uncertainties that may cause Varian Semiconductors financial results to differ are described under the heading Risk Factors in this
report and in the annual report on Form 10-K for the fiscal year ended September 28, 2007, filed with the Securities and Exchange Commission (SEC) on November 21, 2007.

The following information should be read in conjunction with the unaudited interim consolidated financial statements and notes thereto included in Item 1.
Consolidated Financial Statements of this quarterly report and the audited consolidated financial statements and notes thereto and the section titled Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations in Varian Semiconductors annual report on Form 10-K for the fiscal year ended September 28, 2007, filed with the SEC on November 21, 2007.

Overview

Varian Semiconductor is the leading supplier of ion implantation equipment used in the fabrication of
semiconductor chips. Varian Semiconductor designs, manufactures, markets and services semiconductor processing equipment for virtually all of the major semiconductor manufacturers in the world. The VIISta ion implanter products are designed to
leverage single wafer processing technology for the full range of semiconductor implant applications. Varian Semiconductor has shipped more than 4,000 systems worldwide.

Varian Semiconductor provides support, training, and after-market products and services that help its customers obtain high utilization and productivity, reduce operating costs, and extend capital productivity of
investments through multiple product generations. In fiscal year 2008, Varian Semiconductor was ranked number one in customer satisfaction in VLSI Research Inc.s customer survey for all large suppliers of wafer processing equipment, an honor
received in eleven of the past twelve years.

Varian Semiconductors business is cyclical. The business depends upon semiconductor manufacturers
expectations and resulting capacity investments for future integrated circuit demand. Varian Semiconductors business is also tied closely to its market share. Varian Semiconductor has increased its market share substantially in recent years.
Most recently, overall market share grew from 43.1% in calendar year 2006 to 64.5% in calendar year 2007. Historically, Varian Semiconductors business has experienced significant volatility. Varian Semiconductor believes the semiconductor
capital equipment business will



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continue to be volatile, largely due to fluctuations in the level of investment by memory manufacturers. As a result of changes in customers capital
spending plans, Varian Semiconductor now anticipates that fiscal year 2008 revenue will be lower than fiscal year 2007 revenue.

Most advanced devices
below 90nm are produced on 300mm wafers. Memory manufacturers typically produce integrated circuits used for flash and dynamic random access memory, or DRAM, which store and retrieve information, while logic manufacturers typically produce
integrated circuits used to process data. Foundry manufacturers have the capability to produce both memory and logic wafers. Significant purchasing fluctuations by memory, logic and foundry manufacturers could lead to significant fluctuations in
Varian Semiconductors revenues, even if the total ion implant market does not change.

Market Share and Total Available Market. The table
below shows Varian Semiconductors calendar year 2007 and 2006 market share, as reported by Gartner Dataquest in April 2008 and April 2007, respectively. Market share estimates are calculated on a subset of revenue, and information reported by
Gartner Dataquest may not be consistent on a company by company basis. The table below also shows the total available market for ion implanter sales in calendar years 2007 and 2006, also reported by Gartner Dataquest in April 2008 and April 2007,
respectively. The total available market represents estimated worldwide total revenue for ion implanters sold by all companies which sell ion implanters during each of the calendar years.



|                |  |                                 |   |  |                                           |   |  |                  |       |                  |   |      
|--------------- |  | ------------------------------- | - |  | ----------------------------------------- | - |  | ---------------- | ----- | ---------------- | - | -----
|                |  | Market ShareCalendar Year Ended |   |  | Total Available MarketCalendar Year Ended
|                |  | December 31,2007                |   |  | December 31,2006                          |   |  | December 31,2007 |       | December 31,2006
|By market       |  |                                 |   |  |                                           |   |  |                  |       |                  |   |      
|Medium current  |  | 56.6                            | % |  | 52.8                                      | % |  | $                | 454   |                  | $ | 414  
|High current    |  | 77.8                            | % |  | 45.8                                      | % |  |                  | 672   |                  |   | 720  
|High energy     |  | 12.8                            | % |  | 17.4                                      | % |  |                  | 147   |                  |   | 230  
|Ultra high dose |  | 100.0                           | % |  | na                                        |   |  |                  | 64    |                  |   | na   
|                |  |                                 |   |  |                                           |   |  |                  |       |                  |   |      
|Overall         |  | 64.5                            | % |  | 43.1                                      | % |  | $                | 1,337 |                  | $ | 1,364
|                |  |                                 |   |  |                                           |   |  |                  |       |                  |   |      

Market share and total available market research data is also published by VLSI Research Inc. In April 2008, VLSI
Research Inc. reported that Varian Semiconductors overall market share was 64% and that the total available market was $1.3 billion for calendar year 2007.

Varian Semiconductors twenty-one point increase in market share in calendar year 2007 led to increased revenues during 2007 compared to 2006. Varian Semiconductors increase in high current market share is a result of the
industry shift to single wafer implanters at advanced technology nodes (65nm and below). Varian Semiconductor began developing single wafer high current tools in 1994 and is currently the industry leader. The increase in medium current market share
is primarily related to Varian Semiconductors market share growth in Taiwan. The decrease in high energy market share is primarily related to customer mix in the total available market for high energy tools. Varian Semiconductors
position in the newly designated ultra high-dose market has resulted from the success of its new plasma doping tool known as the VIISta PLAD, which is currently used by memory manufacturers.

Critical Accounting Policies and Significant Accounting Estimates

Varian Semiconductors discussion and analysis of its financial condition and results of operations are based upon Varian Semiconductors consolidated financial statements, which have been prepared in accordance with generally
accepted accounting principles, or GAAP, in the U.S. The preparation of these consolidated financial statements requires Varian Semiconductor to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and liabilities. On a continual basis, Varian Semiconductor evaluates its estimates, including those related to revenues, inventories, accounts receivable, long-lived assets, income
taxes, warranty obligations, deferred revenue, post-retirement benefits, contingencies, stock-based compensation and foreign currencies. Varian Semiconductors critical accounting policies and estimates are described in Item 7 in the
annual report on Form 10-K for the fiscal year ended September 28, 2007, filed with the SEC on November 21, 2007. Varian Semiconductor operates in a highly cyclical and competitive industry that is influenced by a variety of diverse
factors including, but not limited to, technological advances, product life cycles, customer and supplier lead times, and geographic and macroeconomic trends. Estimating product



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demand beyond a relatively short forecasting horizon is difficult and prone to forecasting error due to the cyclical nature and inherent lack of visibility
in the industry. Varian Semiconductor bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See also the factors discussed in the section titled Risk
Factors in Part II, Item 1A.

With the exception of the paragraphs below which discuss the impact of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 (FIN 48), there were no significant changes in Varian Semiconductors critical accounting policies and estimates during
the nine months ended June 27, 2008. Please refer to Managements Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of the Annual Report on Form 10-K for the fiscal year ended
September 28, 2007 for a more complete discussion of the critical accounting policies and estimates.

Income Tax Provision. On a quarterly
basis, Varian Semiconductor provides for income taxes based upon an estimated annual effective income tax rate. The effective tax rate is highly dependent upon the geographic composition of worldwide earnings, tax regulations governing each region,
availability of tax credits and the effectiveness of Varian Semiconductors tax planning strategies. Varian Semiconductor carefully monitors the changes in many factors and adjusts its effective income tax rate on a timely basis. If actual
results differ from these estimates, this could have a material effect on Varian Semiconductors financial condition and results of operations.

In
addition, the calculation of Varian Semiconductors tax liabilities involves dealing with uncertainties in the application of complex tax regulations. As a result of the implementation of FIN 48, Varian Semiconductor recognizes liabilities for
uncertain tax positions based on the two-step process prescribed within this interpretation. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not
that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate
settlement.

Varian Semiconductor adopted FIN 48 on September 29, 2007. See Note 16, Income Taxes to the Consolidated Financial Statements
for a detailed description.

Results of Operations

Revenue

The following table sets forth revenue by category for the three and nine month periods ended June 27, 2008 and June 29,
2007:



|                      |  |                           |         |              |                          |         |  |                        |               |   |  |              |   |              |   |         |  |   |               |  |   |         |   |  |       |  
|--------------------- |  | ------------------------- | ------- | ------------ | ------------------------ | ------- |  | ---------------------- | ------------- | - |  | ------------ | - | ------------ | - | ------- |  | - | ------------- |  | - | ------- | - |  | ----- | -
|                      |  | Fiscal Three Months Ended |         |              | Fiscal Nine Months Ended |        
|                      |  | June 27,2008              |         | June 29,2007 |                          | Change  |  |                        | PercentChange |   |  | June 27,2008 |   | June 29,2007 |   | Change  |  |   | PercentChange | 
|Revenue               |  | (Amounts in thousands)    |         |              |                          |         |  | (Amounts in thousands) |               |   |  |             
|Product               |  | $                         | 159,283 |              | $                        | 264,253 |  | $                      | (104,970      | ) |  | -39.7        | % |              | $ | 629,755 |  | $ | 686,466       |  | $ | (56,711 | ) |  | -8.3  | %
|Service               |  |                           | 23,307  |              |                          | 21,940  |  |                        | 1,367         |   |  | 6.2          | % |              |   | 62,183  |  |   | 63,112        |  |   | (929    | ) |  | -1.5  | %
|Royalty and license   |  |                           | 13      |              |                          | 2,565   |  |                        | (2,552        | ) |  | -99.5        | % |              |   | 59      |  |   | 6,607         |  |   | (6,548  | ) |  | -99.1 | %
|                      |  |                           |         |              |                          |         |  |                        |               |   |  |              |   |              |   |         |  |   |               |  |   |         |   |  |       |  
|Revenue               |  | $                         | 182,603 |              | $                        | 288,758 |  | $                      | (106,155      | ) |  | -36.8        | % |              | $ | 691,997 |  | $ | 756,185       |  | $ | (64,188 | ) |  | -8.5  | %
|                      |  |                           |         |              |                          |         |  |                        |               |   |  |              |   |              |   |         |  |   |               |  |   |         |   |  |       |  
|Revenue by territory: |  |                           |         |              |                          |         |  |                        |               |   |  |              |   |              |   |         |  |   |               |  |   |         |   |  |       |  
|Asia Pacific          |  | $                         | 123,109 |              | $                        | 232,383 |  | $                      | (109,274      | ) |  | -47.0        | % |              | $ | 496,887 |  | $ | 547,028       |  | $ | (50,141 | ) |  | -9.2  | %
|North America         |  |                           | 37,672  |              |                          | 47,096  |  |                        | (9,424        | ) |  | -20.0        | % |              |   | 151,600 |  |   | 168,405       |  |   | (16,805 | ) |  | -10.0 | %
|Europe                |  |                           | 21,822  |              |                          | 9,279   |  |                        | 12,543        |   |  | 135.2        | % |              |   | 43,510  |  |   | 40,752        |  |   | 2,758   |   |  | 6.8   | %
|                      |  |                           |         |              |                          |         |  |                        |               |   |  |              |   |              |   |         |  |   |               |  |   |         |   |  |       |  
|Revenue               |  | $                         | 182,603 |              | $                        | 288,758 |  | $                      | (106,155      | ) |  | -36.8        | % |              | $ | 691,997 |  | $ | 756,185       |  | $ | (64,188 | ) |  | -8.5  | %
|                      |  |                           |         |              |                          |         |  |                        |               |   |  |              |   |              |   |         |  |   |               |  |   |         |   |  |       |  

Product

During the third quarter and first nine months of fiscal year 2008, product revenue was $159.3 million and $629.8 million, respectively, compared to $264.3 million and $686.5 million, respectively, for the same periods a year ago. The
decrease in product revenue in the third quarter of fiscal year 2008 as compared to the third quarter of fiscal year 2007 was primarily on



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account of decreased tools sales due to excess capacity of memory devices. On a unit basis, the number of tools recorded in revenue decreased 56% in the
third quarter of fiscal year 2008 compared to the same period a year ago. Parts sales during the third quarter of fiscal year 2008 increased 10% compared to the same period a year ago due to a higher installed base. Upgrade sales were 18% higher in
the third quarter of fiscal year 2008 compared to the same period in fiscal year 2007 on account of higher sales of productivity upgrades to customers in the Asia Pacific region.

The decrease in product revenue in the first nine months of fiscal year 2008 as compared to the first nine months of fiscal year 2007 was primarily due to decreased tool sales due to overcapacity in the memory
markets. On a unit basis, the number of tools recorded in revenue decreased 20% for the first nine months of fiscal year 2008 compared to the first nine months of fiscal year 2007. Conversely, revenue from parts during the first nine months of
fiscal year 2008 increased 18% compared to the same period a year ago, primarily due to a higher installed base. Upgrade sales were 5% lower in the first nine months of fiscal year 2008 compared to the same period a year ago mainly due to lower
sales to customers in the Asia Pacific region.

Service

Service revenue during the third quarter and first nine months of fiscal year 2008 was $23.3 million and $62.2 million, respectively, compared to $21.9 million and $63.1 million, respectively, for the same periods a year ago. The slight
increase in service revenue in the third quarter of fiscal year 2008 as compared to the same period in fiscal year 2007 is related to higher paid service and installation revenue. The slight decrease in service revenue in the first nine months of
fiscal year 2008 as compared to the same period in fiscal year 2007 is primarily related to fewer contracts in the Asia Pacific region.

Royalty and
License

Royalty revenue for both the third quarter and first nine months of fiscal year 2008 was less than $0.1 million compared to $2.6 million and
$6.6 million, respectively, for the same periods in fiscal year 2007 as most royalty generating agreements have now expired.

Revenue by Territory

The Asia Pacific region accounts for a significant percentage of Varian Semiconductors revenues. Decreases in revenue from this region for the third
quarter and first nine months of fiscal year 2008 as compared to the same periods in fiscal year 2007, are primarily due to the overcapacity in the memory markets.

Customers

During the third quarter of fiscal year 2008, revenue from two customers each accounted 18% of Varian Semiconductors total
revenue. In the third quarter of fiscal year 2007, revenue from three customers accounted for 17%, 16% and 13%, respectively, of Varian Semiconductors total revenue. During the first nine months of fiscal year 2008, revenue from three
customers accounted for 18%, 11% and 11%, respectively, of Varian Semiconductors total revenue. During the first nine months of fiscal year 2007, revenue from one customer accounted for 17% of Varian Semiconductors total revenue. Varian
Semiconductor expects that sales of its products to relatively few customers will continue to account for a high percentage of its revenue in the foreseeable future.

Fluctuations in the timing and mix of product shipments, customer requirements for systems, and the completion of the installation of the product will continue to have a significant impact on the timing and amount of
revenue in any given reporting period (see also Risk Factors in Part II Item 1A).

Shipment Mix

Varian Semiconductors tools are used by logic, memory and foundry manufacturers for integrated circuits. Logic manufacturers make chips that process information and
are owned by the companies that design the chips. Memory manufacturers make chips that store information and they, too, are owned by the companies that design the chips. Foundry manufacturers are contractors that take chip designs from other
companies and make the chips for them. Over the last several years the demand for memory chips has outstripped the demand for logic chips due to the growth in memory intensive applications such as cameras, phones, and MP3 players. Excess capacity of
memory devices is expected to lead to significant decreases in tools purchases from memory manufacturers in the calendar year 2008 compared to calendar year 2007. The following table sets forth tool shipments by market, as a percent of total tool
shipments, for the third quarter and first nine months of fiscal years 2008 and 2007. Percentages are based on the number of tools shipped during the respective period.



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|          |  |                           |   |  |                          |   |  |              |   |  |              |  
|--------- |  | ------------------------- | - |  | ------------------------ | - |  | ------------ | - |  | ------------ | -
|          |  | Fiscal Three Months Ended |   |  | Fiscal Nine Months Ended |  
|          |  | June 27,2008              |   |  | June 29,2007             |   |  | June 27,2008 |   |  | June 29,2007 |  
|By market |  |                           |   |  |                          |   |  |              |   |  |              |  
|Memory    |  | 7                         | % |  | 75                       | % |  | 71           | % |  | 76           | %
|Logic     |  | 43                        | % |  | 25                       | % |  | 29           | % |  | 24           | %
|          |  |                           |   |  |                          |   |  |              |   |  |              |  
|Shipments |  | 100                       | % |  | 100                      | % |  | 100          | % |  | 100          | %
|          |  |                           |   |  |                          |   |  |              |   |  |              |  

Cost of Product Revenue

Cost of product revenue was $80.7 million and gross margin was 49%for the third quarter of fiscal year 2008, compared to cost of product revenue of $139.7 million and gross margin of 47% for the third quarter of
fiscal year 2007. For the first nine months of fiscal year 2008, the cost of product revenue was $321.7 million and gross margin was 49%, compared to cost of product revenue of $369.2 million and gross margin of 46% for the first nine months of
fiscal year 2007. In general, Varian Semiconductors newer products carry higher gross margins than its older ones and Varian Semiconductor has continued to successfully sell a greater proportion of these newer, higher value products. A greater
proportion of parts and upgrade sales contributed to higher gross margins in both the third quarter and first nine months of fiscal year 2008 as compared to the same periods a year ago. In addition, during the third quarter of fiscal year 2008,
Varian Semiconductor fulfilled and recognized revenue related to certain customer commitments which contributed almost one percentage point to gross margin. In both the third quarter and first nine months of fiscal year 2008, the higher margins were
partially offset by inventory charges related to product transitions and reduction in the demand for legacy parts and less efficient factory operations due to lower anticipated production levels.

Cost of Service Revenue

Cost of service revenue was $14.0 million
and gross margin was 40% for the third quarter of fiscal year 2008, compared to cost of service revenue of $13.3 million and gross margin of 39% for the third quarter of fiscal year 2007. Cost of service revenue was $38.9 million and gross margin
was 37% for the first nine months of fiscal year 2008, compared to a cost of service revenue of $39.9 million and gross margin of 37% for the first nine months of fiscal year 2007. The primary reason for the slight increase in gross margin in the
third quarter of fiscal year 2008 versus the same period a year ago was improved margins in service contract revenue.

Research and Development

Research and development expense for the third quarter and first nine months of fiscal year 2008 was $27.2 million and $84.5 million, respectively,
compared to $26.3 million and $76.0 million, respectively, for the same periods in fiscal year 2007. The increase in research and development spending is attributable to Varian Semiconductors rapid product development cycle, which aims to
introduce new products every nine to twelve months and continuing efforts to improve productivity and technical development of its products. Additionally, Varian Semiconductor is actively investing in an effort to find new applications for its
products. Varian Semiconductor focuses on maintaining its leadership position in the markets for medium current, high current and ultra high dose implanters, improving its position in the high energy business and continuing to invest in other new
and next generation products.

Marketing, General and Administrative

Marketing, general and administrative expense for the third quarter and first nine months of fiscal year 2008 was $32.2 million and $97.6 million, respectively, compared to $31.5 million and $94.5 million,
respectively, for the same periods in fiscal year 2007. In general, higher personnel expenses have contributed to the increases in Marketing, General and Administrative expenses for both the third quarter and first nine months of fiscal year 2008.
In addition, during both the third quarter and first nine months of fiscal year 2008, marketing expenses have increased due to Varian Semiconductors increased focus on process support with its customers. During the first nine months of fiscal
year 2008, a reduction in evaluation tool expense partially offset the additional process support expense.

Restructuring

During the third quarter of fiscal year 2008, VSEA incurred a restructuring charge in connection with cost reduction initiatives implemented in response to an industry
downturn. The restructuring charge, part of an ongoing benefit, totaled $0.6 million. It related to a reduction of headcount of approximately 30 people and was primarily severance related.

Interest Income and Interest Expense

During the third quarter and
first nine months of fiscal year 2008, Varian Semiconductor earned $1.8 million and $6.6 million



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in net interest income, respectively, compared to $4.5 million and $16.0 million, respectively for the same periods in fiscal year 2007. The decrease in net
interest income for the third quarter and first nine months of fiscal year 2008 was due to a decrease in average cash and investment balances, primarily attributable to the share repurchase program (See Notes 13 and 14 in the notes to the unaudited
interim consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q for further information regarding comprehensive income and the share repurchase program).

Other Income (Expense), Net

Other income (expense), net, was $0.2
million and $0.3 million in income for both the third quarter and first nine months of fiscal year 2008, compared to $0.3 million in expense and $0.4 million in income, respectively, for the same periods of fiscal year 2007. Other income for the
first quarter of fiscal year 2007 included $0.8 million for the reversal of a liability related to the expiration of the statute of limitations on a pre-spin liability.

Provision for Income Taxes

Varian Semiconductors effective tax rate is based on its current profitability
outlook and its expectations of earnings from operations in the U.S. and other tax jurisdictions throughout the world.

In fiscal 2007 Varian Semiconductor
implemented a plan to realign the legal entities within its worldwide affiliated group. The objective of this realignment was to make its legal structure more consistent with the geographic mix of its customers and suppliers. In effecting this
realignment, Varian Semiconductor has established operations in Switzerland that will provide operational and financial services to all of its international locations.

Varian Semiconductors effective income tax rate was a provision of 38.3% for the first nine months of fiscal year 2008 and a provision of 48.7% for the same period in fiscal year 2007. The 2008 provision
included a discrete net benefit of $2.1 million related to a Swiss net operating loss and favorable tax return adjustments, offset by FIN 48 interest accrual, various charges related to the legal realignment, and other discrete items. The discrete
income tax benefit received in the first nine months of fiscal year 2008 reduced the effective tax rate by approximately 1.4 percentage points. For the same period of fiscal year 2007, Varian Semiconductors income tax expense included tax
charges related to the realignment and a discrete net benefit of $2.2 million related primarily to the reinstatement of the research and development tax credit retroactive to January 1, 2006. The discrete income tax benefit recorded in the
first nine months of fiscal year 2007 reduced the effective tax rate by approximately 1.2 percentage points. The realignment of Varian Semiconductors entities has caused the tax rate to become more sensitive to the geographic distribution of
profits. The 2007 provision was impacted by ongoing tax charges related to Varian Semiconductors announcement in June 2007 that it had begun implementing a plan to improve the alignment of its legal entity structure. The effective rate in both
fiscal year 2008 and fiscal year 2007 is higher than the U.S. federal statutory rate principally due to tax charges to implement the new structure, which are expected to decrease over time, and an increase in reserves for unrecognized tax benefits.
Future tax rates may vary from the historic rates depending on the worldwide composition of earnings and the continuing availability of income tax credits as well as the potential resolution of reserves for unrecognized tax benefits.

In the normal course of business, Varian Semiconductor and its subsidiaries are examined by various federal, state and foreign tax authorities, including the IRS. Varian
Semiconductor is subject to audit by the IRS and various state and foreign authorities for the fiscal years 2003 through 2007. The IRS recently concluded an examination of certain refund claims, primarily related to the extraterritorial income
exclusion, filed by Varian Semiconductor for fiscal years 2000 through 2004. The IRS issued a notice of disallowance relating to a portion of these claims, and Varian Semiconductor filed a formal protest with the Appeals Office of the IRS. It is
unlikely that agreement on these claims will be reached within the next twelve months. The favorable resolution of these claims could result in a benefit to the tax provision in the range of $0 to $5.8 million. Final agreement could reduce the
amount of unrecognized tax benefits by approximately $5.8 million.

Varian Semiconductor is awaiting a final ruling from the Swiss tax authorities. If
granted, the ruling will result in a tax holiday and other tax incentives which may benefit Varian Semiconductors effective tax rate over the long term. Although Varian Semiconductor anticipates realizing a lower future tax rate from this
incentive, receipt of the ruling will cause a discrete income tax charge of approximately $1.1 million in the period received to write down the deferred tax asset related to the initial Swiss losses. These losses were initially benefited at the
statutory rate and a charge will be necessary to write them down to the incentive rate. If made, this charge will also result in a change to the projected effective tax rate for the full year. Furthermore, Varian Semiconductor is finalizing an
in-depth study of its research and development credit for fiscal years 2005 and 2006, and intends to file amended refund claims for the incremental credit. A favorable discrete income tax benefit may be recorded in the period the study is complete
and the benefit, if any, can be estimated.



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Net Income

As a
result of the foregoing factors, in the third quarter and first nine months of fiscal year 2008, Varian Semiconductor recorded net income of $18.3 million and $96.0 million, respectively, compared to net income of $23.4 million and $98.8 million for
the same periods of fiscal year 2007. In the third quarter and first nine months of fiscal year 2008, net income per diluted share was $0.25 and $1.27, respectively, compared to net income per diluted share of $0.29 and $1.19, respectively for the
same periods of fiscal year 2007.

Liquidity and Capital Resources

Varian Semiconductor generated $140.3 million of cash from operations during the first nine months of fiscal year 2008, compared to $83.2 million of cash generated from operations during the first nine months of
fiscal year 2007. Cash provided by operations in the first nine months of fiscal year 2008 was primarily a result of net income of $96.0 million, plus non-cash expenses such as stock-based compensation of $16.1 million and depreciation and
amortization of $12.6 million. Also contributing to cash from operations was a decrease in accounts receivable of $39.2 million on account of lower sales volume. The increase in cash was partially offset by decrease in accounts payable of $19.1
million, primarily driven by lower material receipts and a decrease of $19.5 million in deferred revenue. Deferred revenue decreased due to lower sales volume and fully deferred tools at the end of fiscal year 2007 that have been recognized into
revenue during fiscal year 2008.

Cash provided by operations of $83.2 million in the first nine months of fiscal year 2007 was primarily a result of net
income of $98.8 million, plus non-cash expenses such as stock-based compensation of $15.5 million and depreciation and amortization of $10.5 million. Also contributing to cash from operations were increases in accounts payable and deferred revenue
of $8.5 million and $46.1 million, respectively. These changes were partially offset by a $57.8 million increase in accounts receivable and a $67.1 million increase in inventories. The increase in accounts payable was mainly related to the timing of
inventory receipts and payments throughout the third quarter of fiscal year 2007. The increase in deferred revenue was related to the timing of tool shipments within the quarter. The increase in accounts receivable was related to the volume of
revenue recognized during the latter portion of the third quarter of fiscal year 2007. The increase in inventories was related to an increase in the manufacturing build schedule for the third quarter of fiscal year 2007.

Varian Semiconductor generated $44.9 million from investing activities during the first nine months of fiscal year 2008 compared to $68.1 million in the first nine
months of fiscal year 2007. Varian Semiconductor received proceeds from sales and maturities of investments of $7.6 million and $115.5 million, respectively, during the period, partially offset by $70.6 million used for the purchase of investments
during the first nine months of fiscal year 2008, and $7.6 million used for the purchase of property, plant and equipment during the same period. Varian Semiconductor is using cash from investing activities to repurchase shares of its common stock.
In the first nine months of fiscal year 2007, Varian Semiconductor used $88.8 million of cash and cash equivalents for the purchase of investments and $8.3 million for the purchase of property, plant and equipment. This was offset by proceeds from
sales and maturities of investments of $22.2 million and $143.0 million, respectively, during the first nine months of fiscal year 2007.

During the first
nine months of fiscal year 2008, Varian Semiconductor used $172.3 million of cash for financing activities, primarily to repurchase shares of its common stock. This was partially offset by $5.2 million of cash received from the issuance of common
stock upon the exercise of stock options. During the first nine months of fiscal year 2007, Varian Semiconductor used $253.0 million of cash from financing activities, primarily to repurchase shares of its common stock. This was partially offset by
$40.0 million of cash received from the issuance of common stock upon the exercise of stock options.

Varian Semiconductors Board of Directors
amended the share repurchase program by increasing the amount of funds that may be expended in repurchasing common stock from $700 to $800 million as of April 21, 2008. The program does not have a fixed expiration date. In the first nine months
of fiscal year 2008, Varian Semiconductor repurchased 4.8 million shares at a weighted-average price per share of $37.74. In the first nine months of fiscal year 2007, Varian Semiconductor repurchased 8.7 million shares at a
weighted-average price per share of $34.57. As of July 25, 2008, Varian Semiconductor had $85.6 million remaining in its repurchase authorization.

On
May 23, 2008, Varian Semiconductor entered into a credit agreement with a financial institution providing for borrowings of a maximum principal amount of up to $100 million under an unsecured revolving credit facility. The credit facility is
intended to provide ongoing working capital and cash for acquisitions, stock repurchases, capital expenditures and other general corporate purposes. As of June 27, 2008, there were no outstanding borrowings. See Note 10, Notes
Payable to the Consolidated Financial Statements for a detailed description.

Varian Semiconductors liquidity is affected by many factors, some
based on the normal operations of the business and others related to the uncertainties of the industry and global economies. Varian Semiconductor believes that cash, cash equivalents and investments of $253.1 million at June 27, 2008 will be
sufficient to satisfy working capital requirements, commitments for capital expenditures and other purchase commitments, environmental contingencies and cash requirements through at least the next twelve months.



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Off-Balance Sheet Arrangements

Varian Semiconductor does not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance-sheet arrangements or other contractually narrow or limited purposes. As such, Varian Semiconductor is not exposed to any financing, liquidity, market or credit risk that could arise if Varian
Semiconductor had engaged in such relationships.

Contractual Obligations

Under GAAP, certain obligations and commitments are not required to be included in the consolidated balance sheets and statements of income. These obligations and commitments, while entered into in the normal course
of business, may have a material impact on liquidity. The following commitments as of June 27, 2008 have not been included in the consolidated balance sheets and statements of income included under Item 1. Consolidated Financial
Statements; however, they have been disclosed in the following table in order to provide a more complete picture of Varian Semiconductors financial position and liquidity.



|                           |  |                        |        |                 |   |          |  |          |       |                  |   |     |  |   |   
|-------------------------- |  | ---------------------- | ------ | --------------- | - | -------- |  | -------- | ----- | ---------------- | - | --- |  | - | --
|                           |  | Payments Due by Period
|                           |  | Total                  |        | Less than 1Year |   | 1-3Years |  | 3-5Years |       | More than5 Years
|                           |  | (Amounts in thousands)
|Operating leases           |  | $                      | 3,608  |                 | $ | 2,096    |  | $        | 960   |                  | $ | 488 |  | $ | 64
|Purchase order commitments |  |                        | 48,270 |                 |   | 48,190   |  |          | 80    |                  |   |    |  |   |  
|                           |  |                        |        |                 |   |          |  |          |       |                  |   |     |  |   |   
|Total commitments          |  | $                      | 51,878 |                 | $ | 50,286   |  | $        | 1,040 |                  | $ | 488 |  | $ | 64
|                           |  |                        |        |                 |   |          |  |          |       |                  |   |     |  |   |   

Varian Semiconductor adopted Financial Accounting Standards Board FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109, (FIN 48) on September 29, 2007. As of June 27, 2008, the non-current tax payable under FIN 48 was $38.9 million.
Varian Semiconductor is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.

Transactions with Affiliates and Related Parties

Operations prior to
April 2, 1999 had been part of the former Varian Associates, Inc. (VAI), now known as Varian Medical Systems, Inc. (VMS) (See Note 11. Commitments, Contingencies and Guarantees in the accompanying notes to the unaudited
interim consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q). During the first nine months of fiscal year 2008, Varian Semiconductor was charged by VMS $0.8 million in settlement of these obligations. During the
first nine months of fiscal year 2007, Varian Semiconductor was charged by VMS $0.6 million in settlement of these obligations.

Recent Accounting
Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement defines fair value,
establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB
having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this
statement will change current practice. This statement will be effective for Varian Semiconductors fiscal year 2009. Varian Semiconductor is in the process of evaluating the impact of this statement on its financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement
No. 115. This Statement permits entities to choose to measure many financial



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instruments and certain other items at fair value that are not currently required to be measured at fair value. The decision to measure items at fair value
can be made on an instrument-by-instrument basis, but once the decision is made, it is permanent. This statement will be effective for Varian Semiconductors fiscal year 2009. Varian Semiconductor is in the process of evaluating the impact of
this statement on its financial statements.

In February 2008, the FASB adopted FASB Staff Position SFAS No. 157-2, Effective Date of FASB
Statement No. 157 delaying the effective date of SFAS No. 157 for one year for all non financial assets and non financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). Varian Semiconductor is currently evaluating the impact of the implementation of SFAS No. 157 on its financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. This statement requires enhanced disclosure requirements for derivative instruments and
hedging activities including how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133, and how derivative instruments and related hedged items affect an
entitys financial position, financial performance, and cash flows. This statement will be effective for Varian Semiconductors fiscal year 2010. Varian Semiconductor is in the process of evaluating the impact of this statement on its
financial statements.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|------- | ---------------------------------------------------------

Foreign Currency Exchange Risk

As a multinational company, Varian Semiconductor faces exposure to adverse movements in foreign currency
exchange rates. This exposure may change over time as Varian Semiconductors business practices evolve and could impact Varian Semiconductors financial results. However, based on the results of an annual test, a 10% change in the exchange
rate of the U.S. dollar against other major currencies would not have a material effect on Varian Semiconductors results of operations. Historically, Varian Semiconductors primary exposures have resulted from non-U.S. dollar-denominated
sales and purchases in Asia Pacific and Europe. Varian Semiconductor does not enter into forward exchange contracts for trading purposes. Varian Semiconductors forward exchange contracts generally range from one to twelve months in original
maturity. Typically, no forward exchange contract exceeds one year in original maturity.

Varian Semiconductor hedges currency exposures that are
associated with certain of its assets and liabilities denominated in various non-U.S. dollar currencies. The aggregate exchange loss for the third quarter and first nine months of fiscal year 2008 was $97,000 and $264,000, respectively, compared to
$104,000 and $247,000, respectively, for the same periods a year ago.

Forward exchange contracts outstanding are summarized as follows (amounts in
thousands):



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|                                          |  |               |        |                    |          |           |   |               |  |              |        |           |        |  |   |       
|----------------------------------------- |  | ------------- | ------ | ------------------ | -------- | --------- | - | ------------- |  | ------------ | ------ | --------- | ------ |  | - | ------
|                                          |  | June 27, 2008 |        | September 28, 2007
|                                          |  | NotionalValue |        | ContractRate       |          | FairValue |   | NotionalValue |  | ContractRate |        | FairValue
|Foreign currency purchase contracts:      |  |               |        |                    |          |           |   |               |  |              |        |           |        |  |   |       
|Singapore Dollar                          |  | $             | 3,821  |                    | 1.36     |           | $ | 3,818         |  | $            | 4,609  |           | 1.52   |  | $ | 4,678 
|New Taiwan Dollar                         |  |               | 1,231  |                    | 30.34    |           |   | 1,229         |  |              | 2,093  |           | 32.93  |  |   | 2,100 
|Japanese Yen                              |  |               | 176    |                    | 108.01   |           |   | 176           |  |              | 557    |           | 115.21 |  |   | 556   
|Korean Won                                |  |               |       |                    |         |           |   |              |  |              | 218    |           | 913.35 |  |   | 216   
|                                          |  |               |        |                    |          |           |   |               |  |              |        |           |        |  |   |       
|Total foreign currency purchase contracts |  | $             | 5,228  |                    |          |           | $ | 5,223         |  | $            | 7,477  |           |        |  | $ | 7,550 
|                                          |  |               |        |                    |          |           |   |               |  |              |        |           |        |  |   |       
|Foreign currency sell contracts:          |  |               |        |                    |          |           |   |               |  |              |        |           |        |  |   |       
|Japanese Yen                              |  | $             | 10,862 |                    | 105.60   |           | $ | 10,654        |  | $            | 24,186 |           | 114.91 |  | $ | 24,052
|Korean Won                                |  |               | 8,984  |                    | 1,036.24 |           |   | 8,962         |  |              | 5,072  |           | 939.70 |  |   | 5,177 
|New Taiwan Dollar                         |  |               | 3,990  |                    | 30.43    |           |   | 3,996         |  |              |       |           |       |  |   |      
|Singapore Dollar                          |  |               | 1,024  |                    | 1.38     |           |   | 1,035         |  |              | 169    |           | 1.49   |  |   | 168   
|Israeli Shekel                            |  |               | 1,276  |                    | 3.29     |           |   | 1,242         |  |              | 311    |           | 4.13   |  |   | 319   
|Euro                                      |  |               | 774    |                    | 0.64     |           |   | 779           |  |              | 1,077  |           | 0.73   |  |   | 1,112 
|                                          |  |               |        |                    |          |           |   |               |  |              |        |           |        |  |   |       
|Total foreign currency sell contracts     |  | $             | 26,910 |                    |          |           | $ | 26,668        |  | $            | 30,815 |           |        |  | $ | 30,828
|                                          |  |               |        |                    |          |           |   |               |  |              |        |           |        |  |   |       
|Total contracts                           |  | $             | 32,138 |                    |          |           | $ | 31,891        |  | $            | 38,292 |           |        |  | $ | 38,378
|                                          |  |               |        |                    |          |           |   |               |  |              |        |           |        |  |   |       

Varian Semiconductor uses derivative instruments to protect its foreign operations from fluctuations in earnings
and cash flows caused by volatility in currency exchange rates. Varian Semiconductor hedges its current exposures and a portion of its anticipated foreign currency exposures with hedging instruments having terms of up to twelve months.

Varian Semiconductors international sales, except for those in Japan, are primarily denominated in the U.S. dollar. For foreign currency-denominated sales,
however, the volatility of the foreign currency markets represents risk to Varian Semiconductor. Upon forecasting the exposure, Varian Semiconductor enters into hedges with forward sales contracts whose critical terms are designed to match those of
the underlying exposure. These hedges are evaluated for effectiveness at least quarterly using the change in value of the forward contracts to the change in value of the underlying transaction, with the effective portion of the hedge accumulated in
other comprehensive income. Any measured ineffectiveness is included immediately in other income and expense in the consolidated statements of operations. There was an immaterial amount of ineffectiveness recognized during the three and nine month
periods ended June 27, 2008. There were seven forward foreign exchange sell contracts designated as hedges of product sales in Japanese Yen outstanding at June 27, 2008 totaling an equivalent of $24.6 million. In addition, there was one
forward exchange purchase contract totaling an equivalent of $2.9 million offsetting one of the seven forward sell contracts. At September 28, 2007, there were four forward foreign exchange sell contracts designated as hedges of anticipated
product sales in Japanese Yen totaling an equivalent of $12.6 million. In addition, there were two forward foreign exchange purchase contracts totaling an equivalent of $6.5 million offsetting two of the four forward sell contracts.

There was a net unrealized gain of $0.3 million on the seven forward Yen sell contracts as of June 27, 2008. There were approximately $0.1 million in net unrealized
losses on forward Yen revenue contracts as of September 28, 2007. The fair value of forward exchange contracts generally reflects the estimated amounts that Varian Semiconductor would receive or pay to terminate the contracts at the reporting
date. The notional amounts of forward exchange contracts are not a measure of Varian Semiconductors exposure.

Interest Rate Risk

Although payments under certain of Varian Semiconductors overseas borrowing facilities are tied to market indices, Varian Semiconductor is not exposed to
material interest rate risk from these borrowing facilities, as none were in use at June 27, 2008. Varian Semiconductor has no material cash flow exposure due to rate changes for cash equivalents and investments. Varian Semiconductor maintains
cash investments primarily in money market funds consisting of U.S. Treasury, government agency and investment-grade corporate and municipal securities, as well as short-term time deposits with investment grade financial institutions. Cash
equivalents at June 27, 2008 and September 28, 2007 were $75.5 million and $84.5 million, respectively. At June 27, 2008 and September 28, 2007, Varian Semiconductors short-term investments were $55.2 million and $88.4
million, respectively, and consisted primarily of government agency and corporate bonds with ratings of AA or better. At June 27, 2008 and September 28, 2007, Varian Semiconductors long-term investments were $75.7 million and $96.2
million, respectively, and consisted primarily of government agency and corporate bonds with ratings of AA or better.



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Commodity Price Risk

Varian Semiconductor is not exposed to material commodity price risk.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

The management of Varian Semiconductor, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the disclosure controls and procedures of Varian Semiconductor as of June 27, 2008. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies
its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of Varian Semiconductors disclosure controls and procedures as of June 27, 2008, the Chief Executive Officer and Chief
Financial Officer concluded that, as of such date, Varian Semiconductors disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

No change in Varian Semiconductors internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 27, 2008 that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.



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PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

Information required by this Item is provided in
Note 11. Commitments, Contingencies and Guarantees to the unaudited interim consolidated financial statements under Part I, Item 1 of this Quarterly Report on Form 10-Q and is incorporated herein by reference.



|ITEM 1A. | Risk Factors
|-------- | ------------

You should carefully consider the following risk
factors, in addition to other information included in this quarterly report on Form 10-Q, in evaluating Varian Semiconductor and its business. If any of the following risks occur, Varian Semiconductors business, financial condition and
operating results could be materially adversely affected. There have been no material changes from the risk factors previously disclosed in Item 1A. of Varian Semiconductors 2007 Annual Report on Form 10-K for the year ended
September 28, 2007.

The semiconductor industry is cyclical, and a slowdown in demand for Varian Semiconductors semiconductor manufacturing
equipment may negatively affect financial results.

The semiconductor industry historically has been cyclical in nature and has experienced periodic
downturns. The industry may experience volatility in product pricing and in product demand. Volatility may result in significant reductions and delays in the purchase of semiconductor manufacturing equipment and the construction of new fab
facilities. If such significant reductions and delays in purchasing occur and Varian Semiconductor has procured materials prior to the receipt of the customer purchase order, significant inventory charges could be incurred, thereby negatively
impacting Varian Semiconductors financial results. In addition, even though Varian Semiconductors revenues may fluctuate significantly from period to period, in order to remain competitive, Varian Semiconductor continues to invest in
research and development and to maintain its worldwide customer service and support capabilities. These investments in the business may adversely affect Varian Semiconductors financial results.

Varian Semiconductor faces intense competition in the semiconductor equipment industry.

Significant competitive factors in semiconductor equipment manufacturing include the strength of customer relationships, pricing, technological performance and timing, distribution capabilities and financial
viability. Varian Semiconductor believes that in order to remain competitive in this industry, it will need to devote significant financial resources to research and development, to offer and market a broad range of products, and maintain and
enhance customer service and support centers worldwide. The semiconductor equipment industry is increasingly dominated by large manufacturers who have resources to support customers worldwide, and some of Varian Semiconductors competitors have
substantially greater financial resources and more extensive engineering, manufacturing, marketing, service and support than does Varian Semiconductor. With fewer resources, Varian Semiconductor may not be able to match the product offerings or
customer service and technical support offered by its competitors. In addition, there are several smaller companies that provide innovative technology that may have performance advantages over Varian Semiconductors systems. If these
manufacturers continue to improve their product performance and pricing, enter into strategic relationships, expand their current targeted geographic territory or consolidate with large equipment manufacturers, sales of Varian Semiconductors
products may be adversely affected.

Varian Semiconductor derives a substantial portion of its revenues from a small number of customers, and its
business may be harmed by the loss of any one significant customer.

From time to time within the same accounting period, Varian Semiconductor has sold
significant percentages of its systems to its major customers, some of which include Elpida, Hynix, Hynix-ST, IM Flash, Inotera, Intel, Micron, Nan Ya, Promos, Qimonda, Rexchip, Samsung, SMIC, TSMC, and UMC. During some quarters, some of these
customers have individually accounted for more than 10% of Varian Semiconductors total revenue. Varian Semiconductor expects that sales of its products to relatively few customers will continue to account for a high percentage of its revenue
in the foreseeable future. Furthermore, Varian Semiconductor may have difficulty attracting additional large customers because its sales depend, in large part, upon the decision of a prospective customer to increase manufacturing capacity in an
existing fabrication facility or to transfer a manufacturing process to a new fabrication facility, both of which typically involve a significant capital commitment. Once a semiconductor manufacturer has selected a particular suppliers capital
equipment, the manufacturer generally relies upon that equipment for the specific production line application. Consequently, Varian Semiconductor may experience difficulty in selling to a prospective customer if that customer initially selects a
competitors capital equipment.



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Varian Semiconductors quarterly results of operations are likely to fluctuate, and as a result, Varian
Semiconductor may fail to meet the expectations of its investors and securities analysts, which may cause the price of its common stock to decline.

Varian Semiconductor has experienced and expects to continue to experience significant fluctuations in its quarterly financial results. From time to time, customers may accelerate, postpone or cancel shipments, or production difficulties
may delay shipments. A cancellation, delay in shipment or delay in customer acceptance of the product upon installation in any quarter may cause revenue in such quarter to fall significantly below expectations, which could cause the market price of
Varian Semiconductors common stock to decline. Varian Semiconductors financial results also fluctuate based on gross profit realized on sales. Gross profit as a percentage of revenue may vary based on a variety of factors, including the
mix and average selling prices of products sold, costs to manufacture and customize systems and inventory management. In addition, a number of other factors may impact Varian Semiconductors quarterly financial results, including, but not
limited to the following:



| |  |  | changing global economic conditions and worldwide political instability;
| | - |  | ------------------------------------------------------------------------



| |  |  | general conditions in the semiconductor equipment industry;
| | - |  | -----------------------------------------------------------



| |  |  | the extent that customers use Varian Semiconductors products and services in their business;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | unexpected procurement or manufacturing difficulties;
| | - |  | -----------------------------------------------------



| |  |  | pricing of key components;
| | - |  | --------------------------



| |  |  | fluctuations in foreign exchange rates;
| | - |  | ---------------------------------------



| |  |  | a technical change that Varian Semiconductor is unable to address with its products;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | a failure to achieve continued market acceptance of Varian Semiconductors key products;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | ability to develop, introduce and market new, enhanced and competitive products in a timely manner;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | introduction of new products by Varian Semiconductors competitors;
| | - |  | -------------------------------------------------------------------



| |  |  | strategic technology investment decisions;
| | - |  | ------------------------------------------



| |  |  | legal or technical challenges to Varian Semiconductors products and technology;
| | - |  | --------------------------------------------------------------------------------



| |  |  | adverse weather conditions at its manufacturing facilities or customers facilities;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | changes in the effective tax rate; and
| | - |  | --------------------------------------



| |  |  | new or modified accounting regulations.
| | - |  | ---------------------------------------

Varian
Semiconductors operating expenses also fluctuate on a quarterly basis. A high percentage of Varian Semiconductors expenses are relatively fixed, thus, even a minimal number of cancelled, postponed or delayed shipments could have a
significant adverse impact on financial results. In addition, Varian Semiconductor may continue to heavily invest in such areas such as research and development, despite lower revenue levels. As such, financial results could be adversely impacted.

It is difficult for Varian Semiconductor to predict the quarter in which it will be recognizing revenue from large product orders.

Varian Semiconductor customarily sells a relatively small number of systems within any period. Consequently, Varian Semiconductors revenue and financial results
could be negatively impacted for a particular quarter if anticipated orders from even a few customers are not received in time to permit shipment and/or there are delays in customer acceptance of the product upon installation or future obligations
included in the contract do not permit revenue to be recognized on current tool sales under generally accepted accounting principles (GAAP). Generally, Varian Semiconductor recognizes all or a portion of the revenue from a product upon
shipment provided title and risk of loss has passed to the customer, evidence of an arrangement exists, fees are contractually fixed or determinable, collectibility is reasonably assured through historical collection results and



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regular credit evaluations, and there are no uncertainties regarding customer acceptance. Please refer to the full revenue recognition policy in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations in the Critical Accounting Policies and Significant Judgments and Accounting Estimates section of Varian Semiconductors most recent Annual Report on
Form 10-K. As a result, it is often difficult to determine the timing of product revenue recognition. In addition, Varian Semiconductors product order backlog at the beginning of each quarter may not include all systems needed to achieve
expected revenues for that quarter. Because Varian Semiconductor may build systems according to forecast, the absence of a significant backlog for an extended period of time could adversely affect financial results.

Varian Semiconductors future business depends, in part, on its ability to successfully introduce and manage the transition to new products, and Varian
Semiconductor may not succeed in accomplishing these goals.

Varian Semiconductor believes that its future success will depend on its ability to
develop, manufacture and successfully introduce new systems and product lines with improved capabilities and to continue enhancing existing products; in particular, products that respond to the trend toward single wafer processing and 300mm wafer
processing at more advanced nodes. Varian Semiconductor derives virtually all of its revenue from sales and servicing of systems and related products and services. Varian Semiconductor must accurately forecast the demand for new products while
managing the transition from older products. In addition, Varian Semiconductor may be unable to complete the development or meet the technical specifications of new systems or enhancements or to manufacture and ship these systems or enhancements in
volume and on time, which may harm its reputation and business. If any of Varian Semiconductors new products have reliability or quality problems, Varian Semiconductor may incur additional warranty and service expenses, experience a decline in
product orders or incur higher manufacturing costs to correct such problems, all of which could adversely affect financial results.

Varian
Semiconductor is subject to the risks of operating internationally and it derives a substantial portion of its revenues from outside the U.S.

International revenues account for a substantial portion of Varian Semiconductors revenue. Because Varian Semiconductor relies on sales to customers in Asia Pacific for a significant portion of its revenue, its business is very likely
to be adversely impacted by economic downturns and instability in that region. Varian Semiconductors business in Asia Pacific is affected by demand in each country. In addition, international sales are subject to risks, including, but not
limited to:



| |  |  | changes in legal and regulatory requirements;
| | - |  | ---------------------------------------------



| |  |  | political and economic instability and acts of terrorism;
| | - |  | ---------------------------------------------------------



| |  |  | difficulties in accounts receivable collection;
| | - |  | -----------------------------------------------



| |  |  | natural disasters or public health crises;
| | - |  | ------------------------------------------



| |  |  | difficulties in staffing for cultural diversity and managing international operations;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | foreign trade disputes; and
| | - |  | ---------------------------



| |  |  | fluctuations in foreign exchange rates.
| | - |  | ---------------------------------------

If
Varian Semiconductor is unable to protect its proprietary rights adequately, it may lose its ability to compete effectively in the semiconductor equipment industry.

Varian Semiconductor relies on obtaining and maintaining patent, copyright and trade secret protection for significant new technologies, products and processes and obtaining key licenses because of the length of time
and expense associated with bringing new products through the development process to market. Varian Semiconductor intends to continue to file applications as appropriate for patents covering new products and manufacturing processes. However, Varian
Semiconductor cannot provide assurance of the following:



| |  |  | that patents will be issued from any pending or future patent applications owned by, or licensed to, Varian Semiconductor;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | that the claims allowed under any issued patents will be sufficiently broad to protect Varian Semiconductors technology position against competitors;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | that any issued patents owned by or licensed to Varian Semiconductor will not be challenged, invalidated or circumvented; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | that the rights granted under Varian Semiconductors patents will provide it with competitive advantages.
| | - |  | ---------------------------------------------------------------------------------------------------------

Varian Semiconductor also has agreements with third parties for licensing of patented or proprietary technology. These agreements include royalty-bearing licenses and
technology cross-licenses.

In addition, Varian Semiconductor maintains and enforces its trademarks to increase customer recognition of its products. If
its trademarks are used by unauthorized third parties, Varian Semiconductors business may be harmed. Varian Semiconductor also relies on contractual restrictions on disclosure, copying and transferring title, including confidentiality
agreements with vendors, strategic partners, co-developers, employees, consultants and other third parties to protect its proprietary rights. If these contractual agreements are breached, Varian Semiconductor may not have adequate remedies for
any such breaches. Varian Semiconductor also cannot provide assurance that its trade secrets will not otherwise become known to or be independently developed by others.

Patent claims may be expensive to pursue, defend or settle and may substantially divert Varian Semiconductors resources and the attention of management.

Varian Semiconductor could incur substantial costs and diversion of management resources in defending patent suits brought against it or in asserting its patent rights
against others. If the outcome of any such litigation is unfavorable to Varian Semiconductor, its business may be harmed. Varian Semiconductor may not be aware of pending or issued patents held by third parties that relate to its products or
technologies. In the event that a claim is asserted against Varian Semiconductor, it may need to acquire a license to or contest the validity of a competitors patent. Varian Semiconductor cannot be certain that it could acquire such a license
on commercially acceptable terms, if at all, or that it would prevail in such a proceeding. From time to time Varian Semiconductor has received notices from and has issued notices to such third parties alleging infringement of patent and other
intellectual property rights relating to its products. If Varian Semiconductor is subject to future claims of patent infringement, it may be required to make substantial settlement or damage payments and may have to devote substantial resources to
reengineering its products.

Varian Semiconductor depends on limited groups of suppliers or single source suppliers, the loss of which could impair its
ability to manufacture products and systems.

Varian Semiconductor obtains some of the components and subassemblies included in its products from a
limited group of suppliers, or in some cases a single source supplier. The loss of any supplier (or the temporary inability of any supplier to meet Varian Semiconductors production requirements, including any single source supplier) would
require obtaining one or more replacement suppliers and may also require devoting significant resources to product development to incorporate new parts from other sources into Varian Semiconductors products. The need to change suppliers or to
alternate between suppliers might cause delays in delivery or significantly increase Varian Semiconductors costs. Although Varian Semiconductor has insurance to protect against loss due to business interruption from some sources as necessary,
Varian Semiconductor cannot provide assurance that such coverage will be adequate or that it will remain available on commercially acceptable terms. Although Varian Semiconductor seeks to reduce its dependence on these limited source suppliers,
disruption or loss of these sources could negatively impact its business and damage customer relationships.

Varian Semiconductors outsource
providers may fail to perform as it expects.

Outsource providers have an increasing role in Varian Semiconductors manufacturing operations,
research and development initiatives and in transactional and administrative functions. Although Varian Semiconductor aims at selecting reputable providers and securing their performance on terms documented in written contracts, it is possible that
one or more of these providers could fail to perform as Varian Semiconductor expects and such failure could have an adverse impact on Varian Semiconductors business. In addition, the expansive role of outsource providers has required and will
continue to require Varian Semiconductor to implement changes to its existing operations and to adopt new procedures to deal with and manage the performance of these outsource providers. Any delay or failure in the implementation of our operational
changes and new procedures could adversely affect Varian Semiconductors customer relationships and/or have a negative effect on Varian Semiconductors operating results.



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Varian Semiconductors indemnification obligations under the Distribution Related Agreements could be
substantial, and Varian Semiconductor may not be fully indemnified in accordance with the Distribution Related Agreements for the expenses it incurs.

Under the terms of the Distribution Related Agreements, each of Varian Medical Systems, Inc. (VMS) (formerly VAI), Varian, Inc. (VI) and Varian Semiconductor has agreed to indemnify the other parties, and certain
related persons, from and after the spin-off with respect to certain indebtedness, liabilities and obligations, which could be significant. The availability of such indemnities will depend upon the future financial strength of the companies. There
is a risk that one or more of these companies will not be able to satisfy their indemnification obligations. In addition, the Distribution Related Agreements generally provide that if a court prohibits a company from satisfying its indemnification
obligations, then such obligations will be shared equally by the other companies.

Failure to comply with present or future environmental regulations
could subject Varian Semiconductor to penalties and environmental remediation costs.

Varian Semiconductor is subject to a variety of foreign, federal,
state and local laws regulating the discharge of materials into the environment and the protection of the environment. These regulations include discharges into the soil, water and air and the generation, handling, storage, and transportation and
disposal of waste and hazardous substances. These laws increase the costs and potential liabilities associated with the conduct of Varian Semiconductors operations.

VAI has been named by the U.S. Environmental Protection Agency and third parties as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended
(CERCLA), at eight sites where VAI is alleged to have shipped manufacturing waste for recycling or disposal. VAI is also in various stages of environmental investigation and/or remediation under the direction of, or in consultation with
foreign, federal, state and local agencies at certain current or former VAI facilities. The Distribution Related Agreements provide that each of VMS, Varian Semiconductor and VI will indemnify the others for one-third of these environmental
investigation and remediation costs, as adjusted for any insurance proceeds and tax benefits expected to be realized upon payment of these costs.

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. Varian
Semiconductor has accrued estimated environmental investigation and remediation costs for these sites and facilities. As to other sites and facilities, sufficient knowledge has been gained to be able to reasonably estimate the scope and costs of
future environmental activities. As such, Varian Semiconductor has sufficient accruals to cover Varian Semiconductors portion of these costs.

Accrued amounts are only estimates of anticipated future environmental-related costs, and the amounts actually spent may be greater than such estimates. Accordingly, Varian Semiconductor may need to make additional accruals and subsequent
payments to cover its indemnification obligations that would exceed current estimates. In addition, Varian Semiconductors present and past facilities have been in operation for many years, and over that time in the course of those operations,
such facilities have used substances which are or might be considered hazardous. Varian Semiconductor also may have generated and disposed of wastes which are or might be considered hazardous. Therefore, it is possible that additional environmental
issues may arise in the future that Varian Semiconductor cannot now predict.

Varian Semiconductors ability to manage potential growth or decline,
integration of potential acquisitions, and potential disposition of product lines and technologies creates risks.

The cyclical nature of the
semiconductor industry may cause Varian Semiconductor to experience rapid growth or decline in demand for products and services. As a result, Varian Semiconductor may face significant challenges in maintaining adequate financial and business
controls, materials management, management processes, information systems and procedures on a timely basis, training, managing and appropriately sizing the work force. There can be no assurance that Varian Semiconductor will be able to perform such
actions successfully.

An important element of Varian Semiconductors management strategy is to review acquisition prospects that would complement
existing products, augment market coverage and distribution ability, or enhance technological capabilities. In the future, Varian Semiconductor may make acquisitions of complementary companies, products or technologies, or may reduce or dispose of
certain product lines or technologies that no longer fit Varian Semiconductors long-term strategies. Managing an acquired business, disposing of product technologies or reducing personnel entails numerous operational and financial risks,
including difficulties in assimilating acquired operations and new personnel or separating existing business or product groups, diversion of managements attention to other business concerns, amortization of acquired intangible assets, the
incurrence of debt and contingent liabilities and potential loss of key employees or customers of acquired or disposed operations, among



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others. Varian Semiconductors success will depend, to a significant extent, on the ability of its executive officers and other members of its senior
management to identify and respond to these challenges effectively. In addition, any acquisitions could result in dilutive issuances of equity securities. There can be no assurance that Varian Semiconductor will be able to achieve and manage
successfully any such growth, decline, integration of potential acquisitions, disposition of product lines or technologies, or reduction in personnel, or that management, personnel or systems will be adequate to support continued operations. Any
such inabilities or inadequacies may have a material adverse effect on Varian Semiconductors business, operating results, financial condition, cash flows and/or the price of Varian Semiconductor common stock.

Varian Semiconductor manufactures its products at one primary manufacturing facility and is thus subject to risk of disruption.

Varian Semiconductor has one primary manufacturing facility, located in Gloucester, Massachusetts, and its operations are subject to disruption for a variety of reasons,
including, but not limited to natural disasters, work stoppages, operational facility constraints and terrorism. Such disruption may cause delays in shipments of products to Varian Semiconductors customers and may result in cancellation of
orders or loss of customers and could seriously harm Varian Semiconductors business.

If Varian Semiconductor loses key employees or is unable to
attract and retain key employees, it may be unable to pursue business opportunities.

Varian Semiconductors future success depends to a
significant extent on the continued service of key managerial, technical and engineering personnel. Competition for such personnel is intense, particularly in the labor markets around Varian Semiconductors facilities in Massachusetts. The
available pool of qualified candidates is limited, and Varian Semiconductor may not be able to retain its key personnel or to attract, train, assimilate or retain other highly qualified engineers and technical and managerial personnel in the future.
The loss of these persons or Varian Semiconductors inability to hire, train or retrain qualified personnel could harm Varian Semiconductors business and results of operations.

Varian Semiconductor has anti-takeover defenses that could delay or prevent an acquisition and could adversely affect the price of its common stock.

Provisions of Varian Semiconductors certificate of incorporation and by-laws and of Delaware law could delay, defer or prevent an acquisition or change in
control of Varian Semiconductor or otherwise adversely affect the price of its common stock. For example, Varian Semiconductors Board of Directors is classified into three classes, and stockholders do not have the right to call special
meetings of stockholders. Varian Semiconductors certificate of incorporation also permits its Board of Directors to issue shares of preferred stock without stockholder approval. In addition to delaying or preventing an acquisition, the
issuance of a substantial number of preferred shares could adversely affect the price of the common stock. Varian Semiconductor has also adopted a stockholders rights plan which could significantly dilute the equity interests of a person
seeking to acquire control of Varian Semiconductor without the approval of the Board of Directors.

Varian Semiconductor does not anticipate paying
dividends on its common stock in the future.

Varian Semiconductor has not paid and does not anticipate paying dividends on its common stock. Varian
Semiconductors Board of Directors has discretion to make decisions to pay dividends to common stockholders in the future. The decision will depend on a number of factors, including results of operations, financial conditions and contractual
restrictions that the Board, in its opinion, deems relevant.

Varian Semiconductors financial results may be adversely impacted by higher than
expected tax rates or exposure to additional income tax liabilities.

As a global company, Varian Semiconductors effective tax rate is highly
dependent upon the geographic composition of worldwide earnings and tax regulations governing each region. Varian Semiconductor is subject to income taxes in both the U.S. and various foreign jurisdictions, and significant judgment is required to
determine worldwide tax liabilities. Varian Semiconductors effective tax rate could be adversely affected by changes in the distribution of earnings between countries with differing statutory tax rates, in the valuation of deferred tax assets,
in tax laws or by material audit assessments, which could affect profitability. For example, due to the global business realignment, the distribution of worldwide earnings has changed. Under audit, Varian Semiconductor could face significant
challenges regarding the geographic composition of these earnings from one or more jurisdictions. In addition, Varian Semiconductors effective tax rate has benefited from the research and development (R & D) tax credit
which expired on December 31, 2007. The forecasted effective tax rate for fiscal 2008 reflects this expiration. A retroactive extension of the credit may benefit the effective tax rate in future quarters. Further, the carrying value of deferred
tax assets, which are predominantly in the U.S., is dependent on Varian Semiconductors ability to



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generate future taxable income in the U.S. Varian Semiconductor is also subject to regular examination of its tax returns by the Internal Revenue Service and
other taxing authorities. The IRS and other tax authorities have increasingly focused attention on intercompany transfer pricing with respect to sales of products, services, and the use of intangible assets. Varian Semiconductor could face
significant future challenges on these transfer pricing issues in one or more jurisdictions. Varian Semiconductor regularly assesses the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of
its provision for income taxes. Although Varian Semiconductor believes that its tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in its historical
income tax provisions and accruals.



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|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

The
following table provides information about purchases by Varian Semiconductor during the quarter ended June 27, 2008 of equity securities that are registered by Varian Semiconductor pursuant to Section 12 of the Securities Exchange Act of
1934:

ISSUER PURCHASES OF EQUITY SECURITIES



|                                |  |                                          |  |                                      |       |                                                                                             |           |                                                                                                                                        |   |        
|------------------------------- |  | ---------------------------------------- |  | ------------------------------------ | ----- | ------------------------------------------------------------------------------------------- | --------- | -------------------------------------------------------------------------------------------------------------------------------------- | - | -------
|                                |  | (a)                                      |  | (b)                                  |       | (c)                                                                                         |           | (d)                                                                                                                                   
|Period                          |  | Total Numberof Shares (orUnits)Purchased |  | Average PricePaid per Share(or Unit) |       | Total Number ofShares (or Units)Purchased as Part ofPublicly
AnnouncedPlans or Programs (1) |           | Maximum Number (or ApproximateDollar Value) of Shares (or Units)that May Yet Be Purchased
Underthe Plans or Programs(in thousands) (2)
|March 29, 2008  April 25, 2008 |  | 442,500                                  |  | $                                    | 30.40 |                                                                                             | 442,500   |                                                                                                                                        | $ | 147,216
|April 26  May 23, 2008         |  | 920,897                                  |  | $                                    | 38.14 |                                                                                             | 920,897   |                                                                                                                                        | $ | 112,091
|May 24  June 27, 2008          |  | 710,400                                  |  | $                                    | 37.24 |                                                                                             | 710,400   |                                                                                                                                        | $ | 85,637 
|Total: (3)                      |  | 2,073,797                                |  | $                                    | 36.18 |                                                                                             | 2,073,797 |                                                                                                                                        | $ | 85,637 



|(1) | Varian Semiconductor repurchased an aggregate of 21,715,830 shares of its common stock through June 27, 2008 pursuant to the repurchase program that was first announced in
October 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | At the beginning of the quarter ended June 27, 2008, Varian Semiconductor had an existing authorization to expend up to $700 million for the repurchase of common stock under
the program. On April 21, 2008, Varian Semiconductors Board of Directors amended the repurchase program to increase the amount that may be expended in repurchasing its common stock from $700 million to $800 million. The program does not
have a fixed expiration date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Varian Semiconductor repurchased no shares between June 28, 2008 and July 25, 2008, the latest practicable date prior to the filing date of this quarterly report on Form
10-Q.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

Not applicable.



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

Not
applicable.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

Not applicable.



|ITEM 6. | EXHIBITS
|------- | --------



| | 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | -------------------------------------------------------------------------------------------------------



| | 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | -------------------------------------------------------------------------------------------------------



| | 32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                                                |  |  |  |     |  |                                                          
|----------------------------------------------- |  |  |  | --- |  | ---------------------------------------------------------
|VARIAN SEMICONDUCTOR EQUIPMENT ASSOCIATES, INC.
|Registrant                                     
|                                                |  |  | 
|                                                |  |  |  | By: |  | /S/ Robert J. Halliday                                   
|                                                |  |  |  |     |  | Robert J. Halliday                                       
|                                                |  |  |  |     |  | Executive Vice President and Chief Financial Officer     
|                                                |  |  |  |     |  | (Principal Financial Officer and Duly Authorized Officer)
|Date: August 5, 2008                            |  |  |  |     |  |                                                          



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