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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549







FORM 10-K







(Mark One)



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



For the fiscal year ended October 3, 2008



OR



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



For the transition period from
 to



Commission File No. 000-25393







VARIAN, INC.

(Exact Name of Registrant as Specified in its Charter)







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



(650) 213-8000

(Telephone number)



Securities registered pursuant to Section 12(b) of the Act:



|                      |  |                                            
|--------------------- |  | -------------------------------------------
|(Title of each class) |  | (Name of each exchange on which registered)
|None                  |  | None                                       



Securities
registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

Preferred Stock Purchase Rights



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes  x    No   ̈



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x



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



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ̈



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 Act).    Yes   ̈    No  x



The aggregate market value of
voting and non-voting common equity held by non-affiliates of the registrant based upon the closing sale price of the Common Stock on March 28, 2008, as reported by the Nasdaq Global Select Market, was approximately $1,432,682,000.



The number of shares of the registrants Common Stock outstanding as
of November 21, 2008 was approximately 28,959,000.



|                                                                                                                                                            |  |          
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------
|Documents Incorporated by Reference:                                                                                                                        |  |          
|Document Description                                                                                                                                        |  | 10-K Part
|Certain sections, identified by caption, of the definitive Proxy Statement for the registrants 2009 Annual Meeting of Stockholders (the
Proxy Statement) |  | III      









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VARIAN, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED OCTOBER 3, 2008



TABLE OF CONTENTS



|         |  |                                                                                                              |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|         |  |                                                                                                              |  | Page
|PART I   |  |                                                                                                              |  |     
|         |  |                                                                                                             
|Item 1.  |  | Business                                                                                                     |  | 3   
|         |  |                                                                                                             
|         |  | Executive Officers                                                                                           |  | 10  
|         |  |                                                                                                             
|         |  | Investor Information                                                                                         |  | 11  
|         |  |                                                                                                             
|Item 1A. |  | Risk Factors                                                                                                 |  | 11  
|         |  |                                                                                                             
|Item 1B. |  | Unresolved Staff Comments                                                                                    |  | 17  
|         |  |                                                                                                             
|Item 2.  |  | Properties                                                                                                   |  | 17  
|         |  |                                                                                                             
|Item 3.  |  | Legal Proceedings                                                                                            |  | 18  
|         |  |                                                                                                             
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          |  | 18  
|         |  |                                                                                                             
|PART II  |  |                                                                                                              |  |     
|         |  |                                                                                                             
|Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 19  
|         |  |                                                                                                             
|Item 6.  |  | Selected Financial Data                                                                                      |  | 20  
|         |  |                                                                                                             
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 21  
|         |  |                                                                                                             
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 36  
|         |  |                                                                                                             
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 37  
|         |  |                                                                                                             
|Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  | 37  
|         |  |                                                                                                             
|Item 9A. |  | Controls and Procedures                                                                                      |  | 37  
|         |  |                                                                                                             
|Item 9B. |  | Other Information                                                                                            |  | 38  
|         |  |                                                                                                             
|PART III |  |                                                                                                              |  |     
|         |  |                                                                                                             
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                                       |  | 39  
|         |  |                                                                                                             
|Item 11. |  | Executive Compensation                                                                                       |  | 39  
|         |  |                                                                                                             
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 39  
|         |  |                                                                                                             
|Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 39  
|         |  |                                                                                                             
|Item 14. |  | Principal Accounting Fees and Services                                                                       |  | 39  
|         |  |                                                                                                             
|PART IV  |  |                                                                                                              |  |     
|         |  |                                                                                                             
|Item 15. |  | Exhibits, Financial Statement Schedules                                                                      |  | 40  



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PART I



Caution Regarding Forward-Looking Statements



Throughout this Report, and particularly in Item 1Business, Item 1ARisk Factors and
Item 7Managements Discussion and Analysis of Financial Condition and Results of Operations, there are forward-looking statements that are based upon our current expectations, estimates and projections, and that reflect our
beliefs and assumptions based on information available to us at the date of this Report. In some cases, you can identify these statements by words such as may, might, will, should, expects,
plans, anticipates, believes, estimates, predicts, potential, or continue, and other similar terms. These forward-looking statements include (but are not limited to)
those relating to the timing and amount of anticipated restructuring costs and related cost savings, whether and when backlog will result in actual sales, and our expected effective annual tax rate and anticipated capital expenditures in fiscal year
2009.



We caution investors that forward-looking statements are
only our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results, performance or
achievements could differ materially from those expressed or implied by the forward-looking statements. Some of the important factors that could cause our results to differ are discussed in Item 1ARisk Factors. We encourage you to
read that section carefully.



Other risks and uncertainties
that could cause actual results to differ materially from those in our forward-looking statements include, but are not limited to, the following: whether we will succeed in new product development, release, commercialization, performance and
acceptance; whether we can achieve continued growth in sales for life science, environmental, energy, and/or applied research and other applications; whether we can achieve continued sales growth in Europe, Asia Pacific and/or the U.S.; risks
arising from the timing of shipments, installations and the recognition of revenues on certain research products, including nuclear magnetic resonance (NMR) spectroscopy systems, magnetic resonance (MR) imaging systems and
fourier transform mass spectrometry (FTMS) systems and superconducting magnets; the impact of shifting product mix on profit margins; competitive products and pricing; economic conditions in our product and geographic markets; whether we
will see continued and timely delivery of key raw materials and components by suppliers; foreign currency fluctuations that could adversely impact revenue growth and earnings; whether we will see continued investment in capital equipment, in
particular given the global liquidity and credit crisis; whether we will see reduced demand from customers that operate in cyclical industries; the impact of any delay or reduction in government funding for research; our ability to successfully
evaluate, negotiate and integrate acquisitions, in particular given the greater difficulty to borrow in the current credit environment; the actual costs, timing and benefits of restructuring activities (such as our Northern California facilities
consolidation) and other efficiency improvement activities (such as our global procurement, lower-cost manufacturing and outsourcing initiative); the variability in our effective income tax rate (due to factors including the timing and amount of
discrete tax events and changes to the unrecognized tax benefits); the timing and amount of share-based compensation; and other risks detailed from time to time in our filings with the U.S. Securities and Exchange Commission (the SEC).
We undertake no special obligation to update any forward-looking statements, whether in response to new information, future events or otherwise.



Item 1.    Business



GENERAL



Overview and History



Varian, Inc., together with its subsidiaries (collectively, the Company), designs, develops, manufactures, markets, sells and services scientific instruments (including analytical instruments, research products and related
software, consumable products, accessories and services) and vacuum products (and related accessories and services). For financial reporting purposes, our operations are grouped into two corresponding segments: Scientific Instruments and Vacuum
Technologies. These segments, their products and the applications in which they are used are described below.



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Varian, Inc. became a separate, public company on April 2, 1999. Until that date, our business was
operated as the Instruments business of Varian Associates, Inc. (VAI). The Instruments business (which included the business units that designed, developed, manufactured, marketed, sold and serviced scientific instruments and vacuum
products, and a business unit that provided contract electronics manufacturing services) was contributed by VAI to us. On that date, VAI distributed to holders of its common stock one share of our common stock and one share of common stock of Varian
Semiconductor Equipment Associates, Inc. (VSEA), which was formerly operated as the Semiconductor Equipment business of VAI, for each share of VAI common stock outstanding on April 2, 1999 (the Distribution). VAI
retained its Health Care Systems business and changed its name to Varian Medical Systems, Inc. (VMS). These transactions were accomplished under the terms of an Amended and Restated Distribution Agreement dated as of January 14,
1999 by and among us, VAI and VSEA (the Distribution Agreement).



Business Segments and Products



For financial
reporting purposes, we have two business segments: Scientific Instruments and Vacuum Technologies, which are described below.



The products and activities of these two segments are related in certain important respects, particularly product applications. In many ways, we view,
manage, operate and describe our Company as being comprised of a single business. Described below are our products by segment, but then separately described are the primary applications for those products.



Scientific Instruments Products



Our Scientific Instruments segment designs, develops, manufactures, markets,
sells and services products used in a broad range of life science (such as pharmaceutical), environmental, energy, and applied research and other applications requiring identification, quantification and analysis of the elemental, molecular,
physical or biological composition or structure of liquids, solids or gases. These products include analytical instruments (primarily mass spectrometers, chromatography instruments, optical spectroscopy instruments and dissolution testing
equipment), research products (including nuclear magnetic resonance (NMR)) spectroscopy systems, magnetic resonance (MR) imaging systems, Fourier Transform mass spectrometry (FTMS) systems, X-ray crystallography
systems and superconducting magnets used in certain of these and other scientific instruments), consumable products (including columns for gas and liquid chromatography and products for the preparation of samples prior to analysis by gas and liquid
chromatography) and related software, accessories and services.



Mass spectrometry (MS) is a technique for analyzing the individual chemical components of substances by ionizing them and determining their mass-to-charge ratios. Our MS products incorporate various technologies for measuring
mass, including single-quadrupole, triple-quadrupole and ion trap mass spectrometers, FTMS systems and mass spectrometer leak detection systems. We combine our mass spectrometers with other instruments to create high-performance instruments such as
liquid chromatograph mass spectrometers (LC/MS), liquid chromatograph nuclear magnetic resonance mass spectrometers (LC-NMR/MS), gas chromatograph mass spectrometers (GC/MS) and inductively coupled plasma mass
spectrometers (ICP-MS). We also offer related software and accessories for these and other similar instruments.



Chromatography is a technique for separating, identifying and quantifying the individual chemical components of substances based on the physical and
chemical characteristics specific to each component. Our chromatography instruments include gas chromatographs (GC), high-performance liquid chromatographs (HPLC), gel permeation chromatographs (GPC), flash
chromatography instruments and sample automation products. For certain applications, mass spectrometers are sold as a detector for GC or HPLC systems. We also offer related software and accessories for these and other similar instruments.



Optical spectroscopy is a technique for analyzing the
individual chemical components of substances based on the absorption or emission of electromagnetic radiation of specific wavelengths of light. Our optical spectroscopy instruments include atomic absorption (AA) spectrometers,
inductively coupled plasma-optical emissions spectrometers (ICP-OES), inductively coupled plasma-mass spectrometers



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(ICP-MS), fluorescence spectrophotometers, ultraviolet-visible (UV-Vis) spectrophotometers, Fourier Transform infrared
(FT-IR) spectrophotometers, near-infrared (NIR) spectrophotometers, Raman spectrometers and sample automation products. We also offer related software and accessories for these and other similar instruments.



Dissolution testing is a technique for in-vitro analysis of the rate of
release of a drug under controlled conditions. Our dissolution products include dissolution apparatus and other testers, software and accessories used in analyzing the rate of release and testing the physical characteristics of different dosage
forms. Our UV-Vis spectrophotometers are often used with these products.



Our software products are used to automate, process, collect, manage, analyze and store data generated by analytical instruments, and are often used for regulatory compliance purposes with respect to such data. These
products include chromatography data systems that allow users to control LC and GC instruments from multiple suppliers on a single platform and other software products tailored to specific instruments and applications.



Magnetic resonance is a non-destructive instrumental technique that uses
electromagnetic fields to interact with the magnetic property of atomic nuclei in order to determine and analyze the molecular content and structure of liquids and solids. Our NMR spectroscopy systems are used in the study of liquids containing
chemical substances, including proteins, nucleic acids (DNA and RNA) and carbohydrates. They are also used for the analysis of solid materials such as membranes, crystals, plastics, rubbers, ceramics and polymers. Our MR imaging systems are used to
obtain non-invasive images of primarily biological materials and to probe the chemical processes within these materials. Our MR imaging systems include human and other imaging systems used in research. We also offer probes, imaging gradient coils,
consoles, software and other accessories to customers seeking to enhance NMR and MR imaging performance. Our research products also include Fourier Transform mass spectrometer (FTMS) systems, which is a technique for determining the
function and structural characterization of proteins and other biomolecules. Superconducting magnets are used in our NMR spectroscopy, MR imaging, FTMS and other scientific (including life science) systems. We also sell these magnets directly to
original equipment manufacturers (OEMs) (such as manufacturers of high-field MR imaging systems) and end-users.



X-ray crystallography is an analytical technique that uses a beam of X-rays to determine the arrangement of atoms within a crystal. X-ray crystallography
is used in pharmaceutical and other research laboratories to determine the structure of both small and large molecules (such as proteins). We also offer related software, accessories and consumable products for these systems.



Our software products are used to automate, process, collect, manage and
store data generated by research products. These products include NMR and MR imaging data acquisition, processing, analysis and display software for our complete line of NMR and MR imaging systems, FTMS and X-ray crystallography systems, and other
software products tailored to specific instruments and applications.



Our consumable products are used in numerous laboratory applications and include: sample preparation consumables such as solid phase extraction (SPE) and filtration products used in tube formats to clean up and extract complex
samples for toxicology and environmental applications and in 96-well plate formats for drug discovery and clinical research applications; micro volume SPE pipette tips used in protein research; polymeric particles used in the synthesis and
purification of therapeutic compounds, and for clinical diagnostic applications; HPLC and GC columns used to separate target analytes prior to UV detection or mass spectrometry analysis; HPLC columns and media used in health science applications for
the analysis of thermally labile compounds; GC columns used in various applications for the analysis and purification of thermally stabile compounds; GPC columns and standards for the analysis of polymers; flash chromatography consumables used in
early stage drug research; and other HPLC and GC stationary phase chemistries and column dimensions for a wide range of life science and other applications. Consumable products also include scientific instrument parts and supplies such as filters
and fittings for GC and HPLC systems; xenon lamps and cuvettes for UV-Vis-NIR, fluorescence, FT-IR and Raman spectroscopy instruments; and graphite furnace tubes, hollow cathode lamps and specialized sample introduction glassware for our AA, ICP-OES
and ICP-MS products. Other consumable products include on-site screening and laboratory-based kits for drugs of abuse testing (DAT) on urine or saliva samples, such as in pre-employment screening, criminal justice and toxicology testing.



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Vacuum Technologies Products



Our Vacuum Technologies segment designs, develops, manufactures, markets, sells and services a broad range of products used
to create, control, measure and test vacuum environments in life science, environmental, energy, and applied research and other applications where ultra-clean, high-vacuum environments are needed. Vacuum Technologies customers are typically
OEMs that manufacture equipment for these applications. Products include a wide range of high and ultra-high vacuum pumps (diffusion, turbomolecular and ion getter), intermediate vacuum pumps (rotary vane, sorption and dry scroll), vacuum
instrumentation (vacuum control instruments, sensor gauges and meters) and vacuum components (valves, flanges and other mechanical hardware). Its products also include helium mass spectrometry and helium-sensing leak detection instruments used to
identify and measure leaks in hermetic or vacuum environments. In addition to product sales, we also offer a wide range of services including an exchange and rebuild program, assistance with the design and integration of vacuum systems, applications
support and training in basic and advanced vacuum technologies.



Information Rich Detection Products



We
refer to certain of the products described above as information rich detectors (IRD). IRD products include mass spectrometers, NMR systems, MR imaging systems, X-ray crystallography systems and FT-IR instruments. All of these
products provide users with multi-dimensional layers of information and/or higher sensitivity, which are critical to the ability to optimize analyses and processes. IRD instruments typically provide broad-based qualitative capabilities for screening
of compounds in complex mixtures, precise quantitative information for determining the relative concentrations of the compounds and dimensions of structural information for confirming the identity of the analytes. Our IRD products also include
superconducting magnets and vacuum pumps, consumables and other components and products used either in or with our IRD instruments or sold directly to OEMs and end-users for use in IRD products; we also provide various services in connection with
our IRD products.



Customers and Applications



Our products are sold principally for use in life science
applications (including the study of biological processes and the testing of biological materials), environmental applications (including food safety and testing of air, water and soil), energy applications (including raw materials), and applied
research and other applications. Many of our products are used in more than one of these applications.



Almost all of the Scientific Instruments products described above are or can be used in life science applications, such as by pharmaceutical companies in
drug development, manufacturing (including process control) and quality control; and by research hospitals and universities in basic chemistry, biological, biochemistry and health care research. Life science customers include branded and generic
pharmaceutical companies, biotechnology and toxicology companies, governmental agencies and numerous academic institutions and research hospitals. The Vacuum Technologies products described above similarly are or can be used in a broad range of life
science applications, such as in mass spectrometers for analytical analysis and in linear accelerators for cancer therapy. In fiscal years 2008, 2007 and 2006, sales into life science applications accounted for approximately 40% to 45% of our total
sales (these are estimates based on assumptions of how our products are likely to be used by customers, and are provided only as an indication of a historical trend).



Almost all of the Scientific Instruments products described above are or can also be used in environmental, energy, applied
research and other applications, such as by environmental laboratories in performing chemical analyses of water, soil, air, solids, and food and other products; by petroleum and natural gas companies in performing chemical analyses in exploration,
refining, quality control, distribution and research; in alternative energy, such as biofuels and solar energy; by agricultural, chemical, mining and metallurgy and food and beverage processing companies in conducting research and quality control;
and by governmental, academic and other research laboratories in forensic analysis, materials science and general research. The Vacuum Technologies products described above are or can be used in a broad range of applications, such as in the
manufacture of flat-panel displays, solar energy panels, CRT tubes, decorative coating, functional coatings, disks for memory storage, architectural glass, optical lenses and automobile components; in food packaging; in the testing of aircraft
components, automobile



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airbags, refrigeration components and industrial processing equipment; in high-energy physics research and medical devices (such as linear accelerators); in
various nuclear energy applications: in nanotechnology applications such as surface scanning and nanomaterials fabrication;and in the manufacture and test of semiconductors and fabrication of metrology equipment.



Marketing and Sales



We market and sell most of our products through our own direct sales organizations, although in certain countries and for
certain products and services, sales are made through various sales representative and distributor arrangements. To support this marketing and sales structure, we have sales and service offices in numerous locations around the world.



We sell our products on a global basis. Sales outside of North America
accounted for 68%, 66% and 61% of sales for fiscal years 2008, 2007 and 2006, respectively. As a result, our customers increasingly require service and support on a worldwide basis. We have sales and service offices located throughout North America,
Europe, Asia Pacific and Latin America. We have invested substantial financial and management resources to develop an international infrastructure to meet the needs of our customers worldwide.



Demand for our products depends on many factors, including the level of
capital expenditures of our customers, the rate of economic growth in applications and geographies where we sell our products and competitive considerations. No single customer accounted for 10% or more of our sales in fiscal year 2008, 2007 or
2006.



We experience some cyclical patterns in sales of our
products. Generally, sales and earnings in the first quarter of our fiscal year are lower when compared to the preceding fourth fiscal quarter, in part because there are fewer working days in the first fiscal quarter (October to December). Sales and
earnings in our third fiscal quarter are usually flat to down sequentially compared to the second fiscal quarter, primarily because there are a number of holidays in the early part of the quarter, especially in Europe, and the June quarter-end has
no significant customer year ends to influence orders. Our fourth fiscal quarter sales and earnings are often the highest in the fiscal year compared to the other three quarters, primarily because many government- and research-related customers
spend budgeted money before their own fiscal years end. This cyclical pattern can be influenced by other factors, including the timing of revenue recognition on large systems, general economic conditions, acquisitions, new product introductions and
products requiring long manufacturing and installation lead times (such as NMR, MR imaging and FTMS systems and superconducting magnets).



We believe that we differentiate our products from those of our competitors by our responsiveness to customer requirements, as determined through market
research. Although specific customer requirements can vary depending on applications, customers generally demand superior performance, ease of use, high quality, high productivity and low cost of ownership. We have responded to these customer
demands by regularly introducing new products focused on these requirements.



Backlog



Our recorded backlog was $235 million
at October 3, 2008, $241 million at September 28, 2007 and $247 million at September 29, 2006. The decrease in backlog from September 28, 2007 to October 3, 2008 was primarily due to a net reduction in unfulfilled orders for
magnets from third-party OEMs, even though orders for these magnets increased in fiscal year 2008 compared to the prior year. The decrease in backlog from September 29, 2006 to September 28, 2007 was primarily due to a net reduction in
unfulfilled orders for MR imaging systems and to a lesser extent for vacuum products. These decreases were partially offset by strong order volume for analytical instruments and to a lesser extent the impact of the weaker U.S. dollar on orders
denominated in other currencies.



We include in backlog
purchase orders or production releases under blanket purchase orders that have firm delivery dates. Recorded backlog in U.S. dollars is impacted by foreign currency fluctuations. In addition, recorded backlog might not result in sales because of
cancellations or other factors.



Most of our products are
shipped soon after they are ordered by customers, with the time between order receipt and shipment being as short as a few days for some products and less than a fiscal quarter for most others. However, other products, in particular certain
magnet-based products, can have significantly



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longer lead times, sometimes in excess of one year. Significant shipments often occur in the last month of each quarter, in part because of how customers
place orders and schedule shipments.



We believe that
approximately 90% of orders included in our backlog at October 3, 2008 will result in revenue before the end of fiscal year 2009.



Competition



Competition in our industries is primarily based upon the performance capabilities of products, technical support and after-sales service, the
manufacturers reputation as a technological leader and product pricing. We believe that performance capabilities are the most important of these criteria.



The markets in which we compete are highly competitive and are characterized by the application of advanced technology. There are numerous companies
that specialize in, and a number of larger companies that devote a significant portion of their resources to, the development, manufacture, sale and service of products that compete with those that we manufacture, sell or service. Many of our
competitors are well-known manufacturers with a high degree of technical proficiency. In addition, competition is intensified by the ever-changing nature of the technologies in the industries in which we are engaged. The markets for our products are
characterized by specialized manufacturers that often have strength in segments or niches of these markets. While the absence of reliable statistics makes it difficult to determine our relative market position in our industry segments, we are one of
the principal manufacturers in our primary fields.



We compete
with many companies. Our Scientific Instruments segment competes primarily with Agilent, Bruker, JEOL, PerkinElmer, Shimadzu, Thermo Fisher Scientific, Waters and other smaller suppliers. Our Vacuum Technologies segment competes primarily with
Adixen (Alcatel), Edwards, INFICON, Oerlikon Leybold, Pfeiffer, Ulvac and other smaller suppliers.



Manufacturing



Our
principal manufacturing activities consist of precision assembly, test, calibration and certain specialized machining activities. For most of our products, we subcontract a portion of the assembly and machining, but perform all other assembly, test
and calibration functions. For some products, we have subcontracted all manufacturing operations.



We believe that the ability to manufacture reliable products in a cost-effective manner is critical to meeting the just-in-time delivery and
other demanding requirements of our OEM and end-user customers. We monitor and analyze product lead times, warranty data, process yields, supplier performance, field data on mean time between failures, inventory turns, repair response times and
other indicators so that we can continuously improve our manufacturing processes.



We are continuously looking for opportunities to outsource manufacturing to third parties who can provide the same quality at lower costs, and to consolidate our own manufacturing into fewer and lower-cost locations.
These initiatives raise certain risks and uncertainties, which are discussed in Item 1ARisk FactorsRestructuring and Other Efficiency Improvement Activities.



As of October 3, 2008, we operated 13 significant manufacturing facilities located throughout the world. Our Scientific
Instruments segment had manufacturing facilities in Palo Alto, California; Walnut Creek, California; Lake Forest, California; Ft. Collins, Colorado; Cary, North Carolina; Melbourne, Australia; Grenoble, France; Middelburg, Netherlands; Wroclaw,
Poland; Church Stretton, United Kingdom; and Yarnton, United Kingdom. Our Vacuum Technologies segment had manufacturing facilities in Lexington, Massachusetts, and Turin, Italy.



All of our significant manufacturing facilities, other than our facility in Wroclaw, Poland, have been certified as
complying with the International Organization for Standardization Series 9000 Quality Standards (ISO 9000).



Raw Materials



Our manufacturing operations require a wide variety of raw materials, electronic and mechanical components, chemical and biochemical materials and other
supplies, some of which are occasionally in



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short supply. In addition, use of certain of our products requires reliable and cost-effective supply of certain raw materials. For example, end-users of our
magnet-based products require helium to operate those products. Helium can be, and at various times has been, difficult to source and is becoming more expensive. If we or our customers cannot obtain sufficient quantities of helium, it could prevent
us from shipping and installing superconducting magnets, which could result in our inability to recognize revenues on magnet-based products. Although we have taken and will continue to take steps to reduce the volume of helium required for the
manufacture and use of these products, shortages of helium could result in even higher helium prices, and thus higher operating costs for magnet-based products, which could impact demand for those products as well as our profit margins on those
products and related services. Changes in the availability or price of certain other key raw materials (such as copper) or components could increase our costs or our customers costs to acquire and operate our products, which could have an
adverse effect on our financial condition or results of operations.



We manufacture some components used in our products. Other components, including certain consumables materials and electronic components and subassemblies, are purchased from other manufacturers. Most of the raw materials, components and
supplies we purchase are available from a number of different suppliers; however, a number of itemssuch as wire used in superconducting magnets, electronic subassemblies and final assemblies used in scientific instrumentsare purchased
from limited or single sources of supply. Disruption of these sources could cause delays or reductions in shipment of our products or increases in our costs, which could have an adverse effect on our financial condition or results of operations.



Research and Development



We are actively engaged in basic and applied research, development and
engineering programs designed to develop new products and to improve existing products. During fiscal years 2008, 2007 and 2006, we spent $71.8 million, $65.2 million and $59.7 million, respectively, on research, development and related engineering
activities. Over this period, the focus of our research and development activities has been shifting more toward IRD and consumable products. We intend to continue to conduct extensive research and development activities, with a continued emphasis
on IRD products such as magnet-based products, mass spectrometers (including vacuum products for use in our mass spectrometers and those of other OEMs) and certain consumable products. There can be no assurance that we will be able to develop and
market new products on a cost-effective and timely basis, that such products will compete favorably with products developed by others or that our existing technology will not be superseded by new discoveries or developments.



Customer Service and Support



We believe that our customer service and support are an integral part of our
competitive strategy. As part of our support services, our applications and technical support staff provides individual assistance in supporting customers specific applications needs, solving analysis problems and integrating vacuum
components. We offer training courses and periodically send our customers information on applications development.



Our products generally include a 90-day to one-year warranty, but in some countries and for some products we offer longer warranties. For most of our
products, service contracts may be purchased by customers to cover equipment no longer under warranty. Service work not performed under warranty or service contract is generally performed on a time-and-materials basis. We install and service our
products primarily through our own field service organization, although certain distributors and sales representatives are contracted to perform some field services.



Patent and Other Intellectual Property Rights



We have a policy of seeking patent, copyright, trademark and trade secret protection in the U.S. and other countries for
developments, improvements and inventions originating within our organization that are incorporated in our products or that fall within our fields of interest. As of October 3, 2008, we owned over 340 patents in the U.S. and over 600 patents in
other countries, and had numerous patent applications on file with various patent agencies worldwide. We intend to continue to file patent applications as we deem appropriate.



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We rely on a combination of copyright, trade secret and other legal, as well as contractual, restrictions
on disclosure, copying and transferring title to protect our proprietary rights. We have trademarks, both registered and unregistered, that are maintained and enforced to provide customer recognition for our products in the marketplace. We also have
agreements with third parties that provide for licensing of patented or proprietary technology. These agreements frequently include royalty-bearing licenses and technology cross-licenses.



Environmental Matters



Our operations are subject to various federal, state and local laws in the U.S., as well as laws in other countries, regulating the discharge of materials
into the environment or otherwise relating to the protection of the environment. These regulations increase the costs and actual and potential liabilities of our operations. However, our compliance with these regulations is not expected to have a
material effect upon our capital expenditures, results of operations, financial condition or competitive position. For additional information on environmental matters, see Item 1ARisk FactorsEnvironmental Matters andGovernmental Regulations.



Employees



At October 3, 2008, we had approximately 3,900 full-time and temporary
employees and contract workers worldwideapproximately 1,300 in North America, 1,600 in Europe, 900 in Asia Pacific and 100 in Latin America.



Executive Officers



The following table sets forth the names and ages of our executive officers, together with positions and offices held within the last five years by such
executive officers.



|                   |  |     |  |                                                                                   |  |             
|------------------ |  | --- |  | --------------------------------------------------------------------------------- |  | ------------
|Name               |  | Age |  | Position (Business Experience)                                                    |  | Period      
|Garry W. Rogerson  |  | 56  |  | President and Chief Executive Officer                                             |  | 2004-Present
|                   |  |     |  | President and Chief Operating Officer                                             |  | 2002-2004   
|                   |  |     | 
|A. W. Homan        |  | 49  |  | Senior Vice President, General Counsel and Secretary                              |  | 2006-Present
|                   |  |     |  | Vice President, General Counsel and Secretary                                     |  | 1999-2006   
|                   |  |     | 
|G. Edward McClammy |  | 59  |  | Senior Vice President and Chief Financial Officer                                 |  | 2008-Present
|                   |  |     |  | Senior Vice President, Chief Financial Officer and Treasurer                      |  | 2002-2008   
|                   |  |     | 
|Martin ODonoghue  |  | 50  |  | Senior Vice President, Scientific Instruments                                     |  | 2006-Present
|                   |  |     |  | Vice President, Scientific Instruments                                            |  | 2003-2006   
|                   |  |     | 
|Sergio Piras       |  | 59  |  | Senior Vice President, Vacuum Technologies                                        |  | 2006-Present
|                   |  |     |  | Vice President, Vacuum Technologies                                               |  | 2000-2006   
|                   |  |     | 
|Gordon B. Tredger  |  | 48  |  | Vice President, Analytical Instruments                                            |  | 2006-Present
|                   |  |     |  | President, Argonaut Technologies, Inc.                                            |  | 2005-2006   
|                   |  |     |  | Senior Vice President, Instrumentation & Integration, Argonaut Technologies, Inc. |  | 2002-2005   
|                   |  |     | 
|Sean M. Wirtjes    |  | 39  |  | Vice President, Finance and Treasurer                                             |  | 2008-Present
|                   |  |     |  | Vice President and Controller                                                     |  | 2006-2008   
|                   |  |     |  | Controller                                                                        |  | 2004-2006   
|                   |  |     |  | Assistant Controller                                                              |  | 2002-2004   
|                   |  |     | 
|Robert W. Dean II  |  | 43  |  | Controller                                                                        |  | 2008-Present
|                   |  |     |  | Director of Finance, Center of Excellence, Applied Materials, Inc.                |  | 2007-2008   
|                   |  |     |  | Director, Operations Finance, Applied Materials, Inc.                             |  | 2006-2007   
|                   |  |     |  | Director, Regional Finance and Business Administration, Applied Materials, Inc.   |  | 2004-2006   
|                   |  |     |  | Director, Global Credit and Collections, Applied Materials, Inc.                  |  | 2001-2004   



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Investor Information



Financial and other information relating to us can be accessed on the Investors page at our website. This can be reached
from our main Internet website (http://www.varianinc.com) by clicking on Investors. On the Investors page at our website, we make available, free of charge, copies of our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing them with or furnishing them to
the SEC.



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



Overall Economic Conditions.As a result of current economic uncertainties, including with respect to global capital and
credit markets and overall economic growth, our customers could experience financial difficulties and as a result modify, delay or cancel plans to purchase our products or services or be unable to pay us on accounts receivable that are owed to the
Company. In addition, our suppliers (including our key suppliers, discussed below), could experience credit or other financial difficulties that could result in delays in their ability to supply us with necessary raw materials, components or
finished products. Any of these factors could have an adverse effect on our financial condition or results of operations.



In addition, we might find it more difficult or expensive in the current economic environment to secure additional capital or credit to pursue actions we
would consider beneficial to the Company or our stockholders, such as acquisitions, capital investments and/or repurchases of our common stock. Although we believe our cash and surplus funds are appropriately invested or in depository accounts, we
could also experience losses on those investments or accounts. Any of these factors could have an adverse effect on our financial condition or results of operations.



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



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



Variability of Operating
Results.    We experience some cyclical patterns in sales of our products. Generally, sales and earnings in the first quarter of our fiscal year are lower when compared to the preceding fourth fiscal quarter, in part, because
there are fewer working days in our first fiscal quarter (October to December). Sales and earnings in our third fiscal quarter are usually flat to down sequentially compared to the second fiscal quarter, primarily because there are a number of
holidays in the early part of the quarter, especially in Europe, and the June quarter-end has no significant customer year ends to influence orders. Our fourth fiscal quarter sales and earnings are often the highest in the fiscal year compared to
the other three quarters, primarily because many government- and research-related customers spend budgeted money before their own fiscal years end. This cyclical pattern can be influenced by other factors, including the timing of revenue recognition
on large systems, general economic conditions, acquisitions, new product introductions and products requiring long manufacturing and installation lead times (such as NMR, MR imaging and FTMS systems and superconducting magnets). Consequently, our
results of operations may fluctuate significantly from quarter to quarter, which can make it difficult to anticipate, compare and measure our results of operations on a quarterly basis.



Most of our products are shipped soon after they are ordered by customers, with the time between order receipt and shipment
being as short as a few days for some products and less than a fiscal quarter for most others. However, other products, in particular certain magnet-based products, can have significantly longer lead times, sometimes in excess of one year.
Significant shipments often occur in the last month of each quarter, in part because of how customers place orders and schedule shipments. This can make it difficult for us to forecast our results of operations.



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Certain of our magnet-based products (including NMR, MR imaging and FTMS systems, NMR probes,
superconducting magnets and other related components) sell on long lead-times, sometimes in excess of one year. Certain of these systems and components sell for high prices; are complex; require development of new technologies and, therefore,
significant research and development resources; are often intended for evolving research applications; often have customer-specific features, capabilities and acceptance criteria; and can be difficult to manufacture and require long lead times. If
we are unable to meet these challenges, it could have an adverse effect on our financial condition or results of operations. In addition, all of these factors can make it difficult for us to forecast the timing of revenue recognition and the gross
profit on these products.



Changes in our effective tax rate
can also create variability in our operating results. Our effective tax rate can be adversely affected by earnings being lower than anticipated in countries having lower statutory rates and higher than anticipated in countries having higher
statutory rates, by changes in the valuation of deferred tax assets or liabilities, by changes in tax laws or interpretations thereof or by other discrete tax events. In addition, we are subject to examination of our income tax returns by the U.S.
Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our income tax reserves and expense. Should actual events or results differ
from our current expectations, charges against or credits to our income tax reserves and/or expense may become necessary or changes in our unrecognized tax benefits could result. Any such adjustments or changes could have an adverse effect on our
financial condition or results of operations. All of this can make it difficult for us to forecast our effective tax rate.



Competition.    The industries in which we operate are highly competitive. We compete against numerous companies, both U.S. and
non-U.S., most with global operations. Some of our competitors have greater financial resources than we have, which may enable them to respond more quickly to new or emerging technologies, take advantage of acquisition opportunities, achieve
economies of scale and other cost reductions, compete on price or devote greater resources to research and development, engineering, manufacturing, marketing, sales or managerial activities. Some also have greater name recognition and geographic and
market presence or lower cost structures than we do. In addition, weaker demand and excess capacity in our industries could cause greater price competition as our competitors seek to maintain sales volumes and market share. For the foregoing
reasons, competition could result in lower revenues due to lost sales or price reductions, lower margins and loss of market share, which could have an adverse effect on our financial condition or results of operations.



Although no single customer accounted for 10% or more of our sales in fiscal
year 2008, we do have important customers, the loss of which could have an adverse effect on our results of operations.



New Product Development.    Technological innovation and new product development are important to maintain the competitive
position of our products and to grow our sales and profit margins. We have historically dedicated a significant portion of our resources to research and development efforts as a means of generating new products and improving existing products, and
intend to continue to conduct extensive research and development activities, with an emphasis on information rich detection products such as magnet-based products, mass spectrometers (including vacuum products for use in mass spectrometers) and
certain consumable products. However, there can be no assurance that we will be able to improve existing products and/or develop new products on a cost-effective and timely basis, that such products will compete favorably with products developed by
others or that our existing technology will not be superseded by new discoveries or developments. If we fail to improve existing products and/or develop new products on a timely basis, we could experience lower revenues and/or lower profit margins,
which could have an adverse effect on our financial condition or results of operations.



Key Suppliers and Raw Materials.    Some items we purchase for the manufacture of our products, including wire used in superconducting magnets and electronic subassemblies used in scientific
instruments, are purchased from limited or single sources of supply. We are undertaking to further outsource manufacturing of certain parts, components, subsystems and even finished products, often to single sources. Disruption of these sources
could cause delays or reductions in shipments of our products or increases in our costs, which could have an adverse effect on our financial condition or results of operations.



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In addition, the manufacturing and/or use of certain of our products require raw materials for which
supply and price can fluctuate significantly. For example, end-users of our magnet-based products require helium to operate those products. Helium can be, and at various times has been, difficult to source and is becoming more expensive. If we or
our customers cannot obtain sufficient quantities of helium, it could prevent us from shipping and installing superconducting magnets, which could result in our inability to recognize revenues on magnet-based products. In addition, shortages of
helium could result in even higher helium prices and thus higher operating costs for magnet-based products, which could impact demand for those products. Changes in the availability or price of certain other key raw materials (such as copper) or
components could increase our costs or our customers costs to acquire and operate our products, which could have an adverse effect on our financial condition or results of operations.



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



Our employees based in certain countries outside
of the U.S. are subject to factory-specific and/or industry-wide collective bargaining agreements. Of these, certain of our employees in Australia are subject to collective bargaining agreements that will need to be renewed in April 2009. A work
stoppage, strike or other labor action at this or other of our facilities could have an adverse effect on our financial condition or results of operations.



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



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



Acquisitions.    We have acquired companies and operations and made minority equity investments in private companies, and intend to acquire companies and operations (and make minority equity investments in private
companies) in the future, as part of our growth strategy. These acquisitions must be carefully evaluated and negotiated if they are to be successful. Once completed, acquired operations must be carefully integrated to realize expected synergies,
efficiencies and financial results. Some of the challenges in doing this include retaining key employees, managing operations in new geographic areas, retaining key customers, integrating data systems, assessing (and if necessary implementing or
improving) internal control over financial reporting and managing transaction costs. All of this must be done without diverting management and other resources from other operations and activities. With respect to minority equity investments, we
often have limited ability to control how their business is conducted. Additionally, acquisition-related goodwill and intangible assets and minority equity investments in private companies are subject to regular impairment testing and potential
impairment charges. For all of these reasons, minority



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equity investments or our failure to successfully evaluate, negotiate and integrate acquisitions could have an adverse effect on our financial condition or
results of operations.



Restructuring and Other Efficiency
Improvement Activities.    We have undertaken restructuring activities (such as our Northern California manufacturing consolidation) and other efficiency improvement activities (such as our global procurement, lower-cost
manufacturing and outsourcing initiatives), and have announced and may undertake similar activities in the future, that we expect to result in certain costs and eventual cost savings. These costs and cost savings are based on estimates at the time
of plan commitment as to the timing of activities to be completed and the timing and amount of related costs to be incurred. We could experience delays, business disruptions and employee turnover in connection with restructuring and other efficiency
improvement activities and our estimates of the costs to complete and savings achieved by these activities could change. As a result, these activities could have an adverse impact on our financial condition or results of operations.



Non-U.S. Operations.    A significant portion of
our manufacturing activities, customers, suppliers and employees are outside of the U.S. As a result, we are subject to various risks, including the following: duties, tariffs and taxes; restrictions on currency conversions, fund transfers or profit
repatriations; import, export and other trade restrictions; protective labor regulations and union contracts; compliance with local laws and regulations, as well as U.S. laws and regulations (such as the Foreign Corrupt Practices Act) as they relate
to our non-U.S. operations; travel and transportation difficulties; and adverse developments in political or economic environments in countries where we operate. These risks could have an adverse effect on our financial condition or results of
operations.



Currency Exchange
Rates.    The U.S. dollar value of our sales and product and operating costs varies with currency exchange rate fluctuations. In order of magnitude, our sales are mainly denominated in U.S. dollars, Euros, British pounds and
Japanese yen, while our costs are mainly denominated in U.S. dollars, Euros, Australian dollars and British pounds. Because we manufacture and sell in the U.S. and many other countries, the impact that currency exchange rate fluctuations have on us
is dependent on the interaction of a number of variables. These variables include, but are not limited to, the relationships between various foreign currencies, the relative amount of our revenues and costs that are denominated in U.S. dollars or in
U.S. dollar-linked currencies, customer resistance to currency-driven price changes and the suddenness and severity of changes in certain foreign currency exchange rates. In addition, we hedge most of our balance sheet exposures denominated in
other-than-local currencies based upon forecasts of those exposures; in the event that these forecasts are overstated or understated during periods of currency volatility, foreign exchange losses could result. For all of these reasons, currency
exchange fluctuations could have an adverse effect on our financial condition or results of operations.



Credit Risk.We extend trade credit to many of our customers. We generally perform credit evaluations of these customers
before extending credit. To some extent, we utilize letters of credit to mitigate credit risks. While we believe that we take appropriate steps to manage customer credit risk, our customers could experience financial difficulties, in particular
given current economic conditions, that could result in delays or difficulties in collecting on accounts receivable that are owed to the Company. This could have an adverse effect on our financial condition or results of operations.



We have cash and surplus funds that we invest, primarily in demand deposits,
short-term U.S. Treasury securities and money market funds. We also purchase foreign exchange forward contracts in order to minimize the short-term impact of foreign currency fluctuations, which contracts are placed primarily with major financial
institutions. We also accept letters of credit from financial institutions to ensure payment for sales of our products. Although we believe that our cash and cash equivalents, our foreign exchange forward contracts and letters of credit provided to
us, are invested or placed with secure financial institutions, there is no assurance that these financial institutions will not default on their obligations to us, especially given global financial market conditions. Loss of principal on demand
deposits or invested funds or a default on a foreign exchange forward contract or letter of credit could have an adverse effect on our financial condition or results of operations.



Key Personnel.    Our success depends upon the efforts and abilities of key personnel, including
research and development, engineering, manufacturing, finance, administrative, marketing, sales and

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management personnel. The availability of qualified personnel and the cost to attract, motivate and retain them can vary significantly based on factors such
as the strength of the general economy. However, even in weak economic periods, there is still intense competition for personnel with certain expertise in the geographic areas where we compete for personnel. In addition, certain employees have
significant institutional and proprietary technical knowledge, which could be difficult to quickly replace. Failure to attract, motivate and retain qualified personnel, who generally do not have employment agreements or post-employment
non-competition agreements, could have an adverse effect on our financial condition or results of operations.



Certain Employee Benefit Plans.    Many of our U.S. employees participate in health care plans under which we are self-insured.
We maintain a stop-loss insurance policy that covers the cost of certain individually large claims under these plans. Each year, our expenses under these plans are recorded based on actuarial estimates of the number and costs of expected claims,
administrative costs and stop-loss premiums. These estimates are then adjusted at the end of each plan year to reflect actual costs incurred. Actual costs under these plans are subject to variability depending primarily upon participant enrollment
and demographics, the actual number and costs of claims made and whether and how much the stop-loss insurance we purchase covers the cost of these claims. In the event that our cost estimates differ from actual costs, our financial condition and
results of operations could be adversely impacted.



We also
maintain defined benefit pension plans for our employees in several countries outside of the U.S. In accordance with Statement of Financial Accounting Standards No. (SFAS) 87, Employers Accounting for Pensions, we utilize a
number of assumptions including the expected long-term rate of return on plan assets and the discount rate in order to determine our defined benefit pension plan costs each year. These assumptions are set based on relevant long-term debt, equity and
other market conditions in the countries in which the plans are maintained. We adjust these assumptions each year in response to corresponding changes in underlying market conditions and expectations. Changes in these market conditions and
expectations result in corresponding changes in our defined benefit pension plan assumptions, liabilities and costs. We could also curtail these plans, which could result in us incurring curtailment/settlement charges. In addition, changes in
relevant government regulations in the countries in which our defined benefit pension plans are located and/or changes in the accounting rules applicable to these plans (including SFAS 87) could also impact our defined benefit pension plan
liabilities and costs. Any such changes could have an adverse effect on our financial condition or results of operations.



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



As is described in Item 1Business, we and VSEA are each obligated (under the terms of the Distribution Agreement) to indemnify VMS for
one-third of certain costs (after adjusting for any insurance proceeds and tax benefits recognized or realized by VMS for such costs) relating to (a) environmental investigation, monitoring and/or remediation activities at certain facilities
previously operated by VAI and third-party claims made in connection with environmental conditions at those facilities, and (b) U.S. Environmental Protection Agency or third-party claims alleging that VAI or VMS is a potentially responsible
party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA) in connection with certain sites to which VAI allegedly shipped manufacturing waste for recycling, treatment or disposal
(the CERCLA sites). With respect to the facilities formerly operated by VAI, VMS is overseeing the environmental investigation, monitoring and/or remediation activities, in most cases under the direction of, or in consultation with,
federal, state and/or local agencies, and handling third-party claims. VMS is also handling claims relating to the CERCLA sites. We are also undertaking environmental investigation, and/or monitoring activities at one of our facilities under the
direction of or in consultation with governmental agencies.



Various uncertainties make it difficult to estimate future costs for certain of these environmental-related activities, specifically external legal expenses, VMS internal oversight costs, third-party claims and



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a former VAI facility where the likelihood and scope of further environmental-related activities are difficult to assess. As of October 3, 2008, it was
nonetheless estimated that our future exposure for these environmental-related costs ranged in the aggregate from $1.2 million to $2.6 million. The time frame over which these costs are expected to be incurred varies with each type of cost,
ranging up to approximately 30 years as of October 3, 2008. No amount in the foregoing range of estimated future costs is discounted, and no amount in the range is believed to be more probable of being incurred than any other amount in such
range. We therefore had an accrual of $1.2 million as of October 3, 2008 for these future environmental-related costs.



Sufficient knowledge has been gained to be able to better estimate other costs of future environmental-related activities. As of October 3, 2008, it
was estimated that our future costs for these environmental-related activities ranged in the aggregate from $2.3 million to $13.1 million. The time frame over which these costs are expected to be incurred varies, ranging up to approximately 30 years
as of October 3, 2008. As to each of these ranges of cost estimates, it was determined that a particular amount within the range was a better estimate than any other amount within the range. Together, these amounts totaled $5.8 million at
October 3, 2008. Because both the amount and timing of the recurring portion of these costs were reliably determinable, that portion is discounted at 4%, net of inflation. We therefore had an accrual of $4.0 million as of October 3, 2008,
which represents our best estimate of these future environmental-related costs after discounting estimated recurring future costs. This accrual is in addition to the $1.2 million described in the preceding paragraph.



At October 3, 2008, our reserve for environmental-related costs, based
upon future environmental-related costs estimated by us as of that date, was calculated as follows:



|                                          |  |                |      |                    |   |                             |  |   |     | 
|----------------------------------------- |  | -------------- | ---- | ------------------ | - | --------------------------- |  | - | --- | 
|                                          |  | RecurringCosts |      | Non-RecurringCosts |   | TotalAnticipatedFuture Cost | 
|(in millions)                             |  |                |      |                    |   |                             |  |   |     | 
|Fiscal Year                               |  |                |      |                    |   |                             |  |   |     | 
|2009                                      |  | $              | 0.3  |                    | $ | 0.3                         |  | $ | 0.6 | 
|2010                                      |  |                | 0.2  |                    |   | 0.3                         |  |   | 0.5 | 
|2011                                      |  |                | 0.2  |                    |   | 0.3                         |  |   | 0.5 | 
|2012                                      |  |                | 0.3  |                    |   | 0.4                         |  |   | 0.7 | 
|2013                                      |  |                | 0.3  |                    |   | 0.2                         |  |   | 0.5 | 
|Thereafter                                |  |                | 3.6  |                    |   | 0.5                         |  |   | 4.1 | 
|                                          |  |                |      |                    |   |                             |  |   |     | 
|Total costs                               |  | $              | 4.9  |                    | $ | 2.0                         |  |   | 6.9 | 
|                                          |  |                |      |                    |   |                             |  |   |     | 
|Less imputed interest                     |  |                | (1.7 | )                 
|                                          |  |                |      |                    |   |                             |  |   |     | 
|Reserve amount                            |  |                | 5.2  |                   
|Less current portion                      |  |                | (0.6 | )                 
|                                          |  |                |      |                    |   |                             |  |   |     | 
|Long-term (included in Other liabilities) |  | $              | 4.6  |                   
|                                          |  |                |      |                    |   |                             |  |   |     | 



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



We have not reduced any environmental-related liability in anticipation of recoveries from third parties. However, an
insurance company has agreed to pay a portion of certain of VAIs (now VMS) future environmental-related costs, for which we have an indemnification obligation, and we therefore have a long-term receivable of $1.0 million (discounted at
4%, net of inflation) in other assets as of October 3, 2008 for our share of that insurance recovery.



Management believes that our reserves for the foregoing and other environmental-related matters are adequate, but as the scope of our obligation becomes
more clearly defined, these reserves may be modified and related charges against or credits to earnings may be made. Although any ultimate liability arising from



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environmental-related matters could result in significant expenditures that, if aggregated and assumed to occur within a single fiscal year, would be
material to our financial statements, the likelihood of such occurrence is considered remote. Based on information currently available and our best assessment of the ultimate amount and timing of environmental-related events, management believes
that the costs of environmental-related matters are not reasonably likely to have a material adverse effect on our financial condition or results of operations.



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



In January 2003, the European Union (EU) adopted Directive 2002/96/EC on Waste Electrical and Electronic
Equipment (the WEEE Directive) and Directive 2002/95/EC on Restriction on the Certain Hazardous Substances in Electrical and Electronic Equipment (the RoHS Directive). The WEEE Directive requires EU-member countries to adopt
implementing legislation imposing certain responsibilities on producers (manufacturers and importers) in the EU of electrical and electronic equipment with respect to the collection and disposal of waste from that equipment and the RoHS Directive
bans in the EU the use of certain hazardous materials in electrical and electronic equipment. All EU-member countries where we manufacture or import products have adopted implementing legislation under these Directives. As a result of the WEEE
Directive, we are incurring (or will incur) waste collection and disposal costs to comply with implementing legislation under the WEEE Directive; these costs have not been significant to-date and we do not expect them to be significant in the
future, but if they are, our financial condition or results of operations could be materially adversely affected. As a result of the RoHS Directive, certain raw materials and components sourced from third parties are no longer available, or will in
the future become unavailable, for use in the manufacture of the Companys products; we have not experienced significant supply disruptions and have not incurred significant costs as a result of the RoHS Directive and we do not expect such
disruptions or costs to be significant in the future, but if they are, our financial condition or results of operations could be materially adversely affected. In addition, legislation similar to the WEEE and RoHS Directives have been or could be
enacted in other countries outside the EU (such as China), which could have an adverse effect on our financial condition or results of operations.



Item 1B.    Unresolved Staff Comments



None.



Item 2.    Properties



As of October 3, 2008, we had manufacturing, warehouse, research and development, sales, service and administrative facilities that had an aggregate
floor space of approximately 550,000 square feet in the U.S. and 882,000 square feet outside of the U.S., for a total of approximately 1,432,000 square feet worldwide. Of these facilities, aggregate floor space of approximately 571,000 square feet
was leased, and we owned the remainder. We believe that our facilities and equipment generally are well maintained, in good operating condition, suitable for our purposes and adequate for current operations. In the first quarter of fiscal year 2009,
we entered into an agreement with VMS under which we agreed to surrender to them the sublease for our facility in Palo Alto, California, which has a total floor space of approximately 210,000 square feet. We expect to fully vacate this facility in
the third quarter of fiscal year 2010.



As of October 3,
2008, we owned or leased 13 significant manufacturing facilities located throughout the world. Our Scientific Instruments segment had manufacturing facilities in Palo Alto, California; Walnut Creek, California; Lake Forest, California; Ft. Collins,
Colorado; Cary, North Carolina; Melbourne, Australia; Grenoble, France; Middelburg, Netherlands; Wroclaw, Poland; Church Stretton, United Kingdom; and Yarnton, United Kingdom. Our Vacuum Technologies segment had manufacturing facilities



17



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in Lexington, Massachusetts; and Turin, Italy. We also owned or leased 55 sales and service facilities located throughout the world, 49 of which were located
outside of the U.S., including in Argentina, Australia, Brazil, Canada, China, France, Germany, Hong Kong, India, Italy, Japan, Korea, Mexico, Netherlands, Russia, Singapore, Spain, Sweden, Switzerland, Taiwan and the United Kingdom.



Item 3.    Legal Proceedings



We are involved in pending legal proceedings that are
ordinary, routine and incidental to our business. While the ultimate outcome of these and other legal matters is not determinable, we believe that these matters are not reasonably likely to have a material adverse effect on our financial condition
or results of operations.



Item 4.    Submission of Matters to a Vote of Security Holders



None.



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##### Table of Contents

PART II



Item 5.    Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities



(a) Our high and
low common stock selling prices in each of the four quarters of fiscal years 2008 and 2007 follow:



|     |  |                                              |       |               |   |              |  |               |       |  |   |      
|---- |  | -------------------------------------------- | ----- | ------------- | - | ------------ |  | ------------- | ----- |  | - | -----
|     |  | Fiscal Year 2008 Common Stock Selling Prices
|     |  | FirstQuarter                                 |       | SecondQuarter |   | ThirdQuarter |  | FourthQuarter
|High |  | $                                            | 73.89 |               | $ | 67.94        |  | $             | 59.76 |  | $ | 54.42
|Low  |  | $                                            | 64.21 |               | $ | 50.61        |  | $             | 49.15 |  | $ | 40.75
|     | 
|     |  | Fiscal Year 2007 Common Stock Selling Prices
|     |  | FirstQuarter                                 |       | SecondQuarter |   | ThirdQuarter |  | FourthQuarter
|High |  | $                                            | 48.38 |               | $ | 59.61        |  | $             | 59.81 |  | $ | 65.39
|Low  |  | $                                            | 43.51 |               | $ | 44.62        |  | $             | 53.79 |  | $ | 55.64



Our common stock is
traded on the NASDAQ Global Select Market under the trading symbol VARI.



We have never paid cash dividends on our capital stock and do not currently anticipate paying any cash dividends in the foreseeable future.



There were 2,504 holders of record of our common stock on November 21, 2008.



(b) Not applicable.



(c) Stock Repurchases.The following table summarizes information
relating to stock repurchases during the fiscal quarter ended October 3, 2008.



|                                        |  |                      |  |                          |       |                                                                         |   |                                                                        |  |   |       
|--------------------------------------- |  | -------------------- |  | ------------------------ | ----- | ----------------------------------------------------------------------- | - | ---------------------------------------------------------------------- |  | - | ------
|Fiscal Month                            |  | SharesRepurchased(1) |  | AveragePrice PerShare(1) |       | Total Value of SharesRepurchased as
Partof Publicly AnnouncedPlan(2)(3) |   | Maximum Total Valueof Shares that May YetBe Purchased Underthe
Plan(2)
|(in thousands, except per share amount) |  |                      |  |                          |       |                                                                         |   |                                                                        |  |   |       
|Balance  June 27, 2008                 |  |                      |  |                          |       |                                                                         |   |                                                                        |  | $ | 69,505
|June 28, 2008  July 25, 2008           |  |                     |  | $                        |      |                                                                         | $ |                                                                       |  | $ | 69,505
|July 26, 2008  August 22, 2008         |  | 319                  |  | $                        | 49.39 |                                                                         |   | 15,674                                                                 |  | $ | 53,831
|August 23, 2008  October 3, 2008       |  | 186                  |  | $                        | 49.51 |                                                                         |   | 9,182                                                                  |  | $ | 44,649
|                                        |  |                      |  |                          |       |                                                                         |   |                                                                        |  |   |       
|Total shares repurchased                |  | 505                  |  | $                        | 49.25 |                                                                         | $ | 24,856                                                                 |  |   |       
|                                        |  |                      |  |                          |       |                                                                         |   |                                                                        |  |   |       



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

|(2) |  | In February 2008, our Board of Directors approved a stock repurchase program under which we were authorized to utilize up to $100 million to repurchase shares of our common stock.
This repurchase program is effective through December 31, 2009.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



19



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##### Table of Contents

Item 6.    Selected Financial Data



|                                                        |  |                   |         |                  |   |                  |  |                  |       |                |   |       |  |   |      
|------------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | ---------------- |  | ---------------- | ----- | -------------- | - | ----- |  | - | -----
|                                                        |  | Fiscal Year Ended
|                                                        |  | Oct. 3,2008(1)    |         | Sept. 28,2007(1) |   | Sept. 29,2006(1) |  | Sept. 30,2005(2) |       | Oct. 1,2004(2)
|(in millions, except per share amounts)                 |  |                   |         |                  |   |                  |  |                  |       |                |   |       |  |   |      
|Statement of Earnings Data                              |  |                   |         |                  |   |                  |  |                  |       |                |   |       |  |   |      
|Sales                                                   |  | $                 | 1,012.5 |                  | $ | 920.6            |  | $                | 834.7 |                | $ | 772.8 |  | $ | 724.4
|Earnings from continuing operations before income taxes |  | $                 | 102.7   |                  | $ | 96.8             |  | $                | 74.7  |                | $ | 63.5  |  | $ | 68.4 
|Income tax expense                                      |  | $                 | 36.3    |                  | $ | 33.2             |  | $                | 24.6  |                | $ | 16.8  |  | $ | 23.1 
|Earnings from continuing operations                     |  | $                 | 66.4    |                  | $ | 63.6             |  | $                | 50.1  |                | $ | 46.7  |  | $ | 45.3 
|Earnings from discontinued operations                   |  |                   |        |                  |   |                 |  |                  |      |                | $ | 79.3  |  | $ | 14.2 
|Net earnings                                            |  | $                 | 66.4    |                  | $ | 63.6             |  | $                | 50.1  |                | $ | 126.0 |  | $ | 59.5 
|Net earnings per basic share:                           |  |                   |         |                  |   |                  |  |                  |       |                |   |       |  |   |      
|Continuing operations                                   |  | $                 | 2.24    |                  | $ | 2.09             |  | $                | 1.62  |                | $ | 1.39  |  | $ | 1.31 
|Discontinued operations                                 |  |                   |        |                  |   |                 |  |                  |      |                |   | 2.35  |  |   | 0.41 
|                                                        |  |                   |         |                  |   |                  |  |                  |       |                |   |       |  |   |      
|Net earnings                                            |  | $                 | 2.24    |                  | $ | 2.09             |  | $                | 1.62  |                | $ | 3.74  |  | $ | 1.72 
|                                                        |  |                   |         |                  |   |                  |  |                  |       |                |   |       |  |   |      
|Net earnings per diluted share:                         |  |                   |         |                  |   |                  |  |                  |       |                |   |       |  |   |      
|Continuing operations                                   |  | $                 | 2.21    |                  | $ | 2.05             |  | $                | 1.59  |                | $ | 1.36  |  | $ | 1.27 
|Discontinued operations                                 |  |                   |        |                  |   |                 |  |                  |      |                |   | 2.31  |  |   | 0.39 
|                                                        |  |                   |         |                  |   |                  |  |                  |       |                |   |       |  |   |      
|Net earnings                                            |  | $                 | 2.21    |                  | $ | 2.05             |  | $                | 1.59  |                | $ | 3.67  |  | $ | 1.66 
|                                                        |  |                   |         |                  |   |                  |  |                  |       |                |   |       |  |   |      
|                                                        | 
|                                                        |  | Fiscal Year End  
|                                                        |  | Oct. 3,2008(1)    |         | Sept. 28,2007(1) |   | Sept. 29,2006(1) |  | Sept. 30,2005    |       | Oct. 1,2004   
|Balance Sheet Data                                      |  |                   |         |                  |   |                  |  |                  |       |                |   |       |  |   |      
|Total assets                                            |  | $                 | 903.2   |                  | $ | 936.8            |  | $                | 861.6 |                | $ | 796.0 |  | $ | 830.7
|Long-term debt (excluding current portion)              |  | $                 | 18.8    |                  | $ | 18.8             |  | $                | 25.0  |                | $ | 27.5  |  | $ | 30.0 





|(1) |  | The results for fiscal years 2008, 2007 and 2006 reflect share-based compensation expense as a result of the adoption of SFAS 123(R) on a prospective basis in the first quarter
of fiscal year 2006. Accordingly, the results for prior periods do not reflect such expense.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Until March 11, 2005, we operated an electronics manufacturing business, which was a contract manufacturer of electronic assemblies and subsystems such as printed circuit
boards for OEMs. On that date, we sold our Electronics Manufacturing business to Jabil Circuit, Inc. As a result, this business has been treated as a discontinued operation in the fiscal years ended September 30, 2005 and October 1, 2004.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Item 7.    Managements Discussion and Analysis of Financial
Condition and Results of Operations



Our fiscal years reported are the 52- or 53-week periods that ended on the Friday nearest September 30. Fiscal year 2008 was comprised of the 53-week
period that ended on October 3, 2008. Fiscal year 2007 was comprised of the 52-week period that ended on September 28, 2007. Fiscal year 2006 was comprised of the 52-week period that ended on September 29, 2006. While fiscal year 2008
revenue and earnings benefited from the extra week, the benefit was substantially less than a proportionate amount.



The discussion below should be read in conjunction with the Companys Consolidated Financial Statements and the accompanying Notes to the Financial
Statements included in Item 15 of this report. In addition, this discussion contains forward-looking statements and should be read together with the risks to our business as described in Part ICaution Regarding Forward-Looking
Statements and Item 1ARisk Factors.



Results of
Operations



Fiscal Year 2008 Compared to Fiscal Year
2007



Segment Results



For financial reporting purposes, our operations are grouped into two
reportable business segments: Scientific Instruments and Vacuum Technologies. The following table presents comparisons of our sales and operating earnings for each of those segments and in total for fiscal years 2008 and 2007:



|                               |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |  |      |  
|------------------------------ |  | ----------------- | ------- | - | ------------------ | ----- | - | - | - | ----- | --------- |  | ----- | - |  | - | ---- |  | ---- | -
|                               |  | Fiscal Year Ended |         |   | Increase(Decrease) |      
|                               |  | October 3,2008    |         |   | September 28,2007  |       |  
|                               |  | $                 |         |   | % ofSales          |       |   | $ |   |       | % ofSales |  |       | $ |  | % |     
|(dollars in millions)          |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |  |      |  
|Sales by Segment:              |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |  |      |  
|Scientific Instruments         |  | $                 | 838.7   |   |                    | 82.8  | % |   | $ | 761.5 |           |  | 82.7  | % |  | $ | 77.2 |  | 10.1 | %
|Vacuum Technologies            |  |                   | 173.8   |   |                    | 17.2  |   |   |   | 159.1 |           |  | 17.3  |   |  |   | 14.7 |  | 9.3  |  
|                               |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |  |      |  
|Total company                  |  | $                 | 1,012.5 |   |                    | 100.0 | % |   | $ | 920.6 |           |  | 100.0 | % |  | $ | 91.9 |  | 10.0 | %
|                               |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |  |      |  
|Operating Earnings by Segment: |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |  |      |  
|Scientific Instruments         |  | $                 | 80.7    |   |                    | 9.6   | % |   | $ | 79.4  |           |  | 10.4  | % |  | $ | 1.3  |  | 1.5  | %
|Vacuum Technologies            |  |                   | 34.4    |   |                    | 19.8  |   |   |   | 32.0  |           |  | 20.1  |   |  |   | 2.4  |  | 7.6  |  
|                               |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |  |      |  
|Total segments                 |  |                   | 115.1   |   |                    | 11.4  |   |   |   | 111.4 |           |  | 12.1  |   |  |   | 3.7  |  | 3.3  |  
|General corporate              |  |                   | (13.6   | ) |                    | (1.4  | ) |   |   | (18.8 | )         |  | (2.1  | ) |  |   | 5.2  |  | 27.9 |  
|                               |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |  |      |  
|Total company                  |  | $                 | 101.5   |   |                    | 10.0  | % |   | $ | 92.6  |           |  | 10.1  | % |  | $ | 8.9  |  | 9.6  | %
|                               |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |  |      |  



Scientific
Instruments.    The increase in Scientific Instruments sales was primarily attributable to higher sales volume across a broad range of our analytical instruments and consumable products, partially offset by lower sales of
research products. Sales increased for environmental, energy and life science applications. During fiscal year 2008, the U.S. dollar weakened compared to most other foreign currencies in which the Company sells products and services, which also
contributed to the increase in sales. Excluding sales from businesses acquired in fiscal year 2008, Scientific Instruments sales in the fiscal year increased by approximately 9% compared to fiscal year 2007.



Scientific Instruments operating earnings for fiscal year 2008 include an
acquisition-related in-process research and development charge of $1.7 million, acquisition-related intangible amortization of $8.4 million, amortization of $1.4 million related to inventory written up to fair value in connection with acquisitions,
restructuring and other related costs of $5.5 million and share-based compensation expense of $3.5 million. In comparison, Scientific Instruments operating earnings for fiscal year 2007 include acquisition-related intangible amortization of $7.9
million, amortization of $1.3 million related to inventory written up to fair value in connection with an acquisition, restructuring and other related costs of $4.3 million and share-based compensation expense of $3.4 million. Excluding the impact
of these items,



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operating earnings were lower as a percentage of sales due to higher transition costs related to the relocation of manufacturing activities for certain
products, the weaker U.S. dollar (which was favorable to reported sales but unfavorable to reported operating margins) and higher costs relating to new product introductions. These factors more than offset the positive impact of sales volume
leverage.



Vacuum
Technologies.    The increase in Vacuum Technologies sales was driven by higher sales volume over a broad range of products and services and the positive impact of the weaker U.S. dollar.



Vacuum Technologies operating earnings for fiscal years 2008 and 2007 include
share-based compensation expense of $0.9 million and $1.1 million, respectively. Excluding the impact of this item, the decrease in Vacuum Technologies operating earnings as a percentage of sales was primarily the result of the weaker U.S. dollar,
which was only partially offset by the positive impact of sales volume leverage.



Consolidated Results



The following table presents comparisons of our sales and other selected consolidated financial results for fiscal years 2008 and 2007:



|                                                |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|----------------------------------------------- |  | ----------------- | ------- | - | ------------------ | ----- | - | - | - | ----- | --------- |  | ----- | - |  | - | ---- | - |  | ------ | -
|                                                |  | Fiscal Year Ended |         |   | Increase(Decrease) |      
|                                                |  | October 3,2008    |         |   | September 28,2007  |       |  
|                                                |  | $                 |         |   | % ofSales          |       |   | $ |   |       | % ofSales |  |       | $ |  |   | %    |  
|(dollars in millions, except per share data)    |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Sales                                           |  | $                 | 1,012.5 |   |                    | 100.0 | % |   | $ | 920.6 |           |  | 100.0 | % |  | $ | 91.9 |   |  | 10.0   | %
|                                                |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Gross profit                                    |  |                   | 452.4   |   |                    | 44.7  |   |   |   | 415.5 |           |  | 45.1  |   |  |   | 36.9 |   |  | 8.9    |  
|                                                |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|                                                |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Operating expenses:                             |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Selling, general and administrative             |  |                   | 277.4   |   |                    | 27.4  |   |   |   | 257.8 |           |  | 28.0  |   |  |   | 19.6 |   |  | 7.7    |  
|Research and development                        |  |                   | 71.8    |   |                    | 7.1   |   |   |   | 65.2  |           |  | 7.0   |   |  |   | 6.6  |   |  | 10.2   |  
|Purchased in-process research and development   |  |                   | 1.7     |   |                    | 0.2   |   |   |   |      |           |  |      |   |  |   | 1.7  |   |  | 100.0  |  
|                                                |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Total operating expenses                        |  |                   | 350.9   |   |                    | 34.7  |   |   |   | 323.0 |           |  | 35.0  |   |  |   | 27.9 |   |  | 8.7    |  
|                                                |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Operating earnings                              |  |                   | 101.5   |   |                    | 10.0  |   |   |   | 92.5  |           |  | 10.1  |   |  |   | 9.0  |   |  | 9.6    |  
|Impairment of private company equity investment |  |                   | (3.0    | ) |                    | (0.3  | ) |   |   |      |           |  |      |   |  |   | (3.0 | ) |  | (100.0 | )
|Interest income                                 |  |                   | 5.9     |   |                    | 0.6   |   |   |   | 6.2   |           |  | 0.7   |   |  |   | (0.3 | ) |  | (3.6   | )
|Interest expense                                |  |                   | (1.7    | ) |                    | (0.1  | ) |   |   | (1.9  | )         |  | (0.2  | ) |  |   | 0.2  |   |  | 11.8   |  
|Income tax expense                              |  |                   | (36.3   | ) |                    | (3.6  | ) |   |   | (33.2 | )         |  | (3.7  | ) |  |   | (3.1 | ) |  | 9.2    |  
|                                                |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Net earnings                                    |  | $                 | 66.4    |   |                    | 6.6   | % |   | $ | 63.6  |           |  | 6.9   | % |  | $ | 2.8  |   |  | 4.4    | %
|                                                |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Net earnings per diluted share                  |  | $                 | 2.21    |   |                    |       |   |   | $ | 2.05  |           |  |       |   |  | $ | 0.16 |   |  |        |  
|                                                |  |                   |         |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  



Sales.    As discussed under the heading Segment Results above, sales by the Scientific Instruments and Vacuum Technologies segments in fiscal year 2008 increased by 10.1% and 9.3%, respectively, compared
to fiscal year 2007. The growth in consolidated sales was broad-based, with increases in sales of products for environmental, energy and life science applications. The weaker U.S. dollar and acquisitions also had a positive effect on the reported
sales increases. Excluding sales from businesses acquired in fiscal year 2008, sales in fiscal year 2008 increased by approximately 9% compared to fiscal year 2007.



For geographic reporting purposes, we refer to four regionsNorth America (excluding Mexico), Europe (including the
Middle East and Africa), Asia Pacific (including India) and Latin America (including Mexico).



22



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Sales by geographic region in fiscal years 2008 and 2007 were as follows:



|                            |  |                   |         |           |                    |   |   |   |           |  |       |   |  |   |      |  |      |  
|--------------------------- |  | ----------------- | ------- | --------- | ------------------ | - | - | - | --------- |  | ----- | - |  | - | ---- |  | ---- | -
|                            |  | Fiscal Year Ended |         |           | Increase(Decrease) |  
|                            |  | October 3,2008    |         |           | September 28,2007  |   |  
|                            |  | $                 |         | % ofSales |                    |   | $ |   | % ofSales |  |       | $ |  | % |     
|(dollars in millions)       |  |                   |         |           |                    |   |   |   |           |  |       |   |  |   |      |  |      |  
|Sales by Geographic Region: |  |                   |         |           |                    |   |   |   |           |  |       |   |  |   |      |  |      |  
|North America               |  | $                 | 324.8   |           | 32.1               | % |   | $ | 312.1     |  | 33.9  | % |  | $ | 12.7 |  | 4.1  | %
|Europe                      |  |                   | 409.0   |           | 40.4               |   |   |   | 376.8     |  | 40.9  |   |  |   | 32.2 |  | 8.6  |  
|Asia Pacific                |  |                   | 216.6   |           | 21.4               |   |   |   | 185.6     |  | 20.2  |   |  |   | 31.0 |  | 16.7 |  
|Latin America               |  |                   | 62.1    |           | 6.1                |   |   |   | 46.1      |  | 5.0   |   |  |   | 16.0 |  | 34.4 |  
|                            |  |                   |         |           |                    |   |   |   |           |  |       |   |  |   |      |  |      |  
|Total company               |  | $                 | 1,012.5 |           | 100.0              | % |   | $ | 920.6     |  | 100.0 | % |  | $ | 91.9 |  | 10.0 | %
|                            |  |                   |         |           |                    |   |   |   |           |  |       |   |  |   |      |  |      |  



The increases in sales
in Europe, Asia Pacific and North America were attributable to higher sales by both the Scientific Instruments and Vacuum Technologies segments. The sales increase in Latin America was driven by higher Scientific Instruments sales, with Vacuum
Technologies sales essentially flat in that region.



Gross
Profit.    Gross profit for fiscal year 2008 includes $6.5 million in amortization expense relating to acquisition-related intangible assets, $1.4 million in amortization expense related to inventory written up to fair value
in connection with recent acquisitions, $1.6 million in restructuring and other related costs and share-based compensation expense of $0.4 million. In comparison, gross profit for fiscal year 2007 includes $5.3 million in amortization expense
relating to acquisition-related intangible assets, $1.3 million in amortization expense related to inventory written up to fair value in connection with an acquisition, $1.2 million in restructuring and other related costs and share-based
compensation expense of $0.4 million. Excluding the impact of these items, gross profit as a percentage of sales decreased slightly due to higher transition costs related to the relocation of manufacturing activities for certain products and the
weaker U.S. dollar (which was favorable to reported sales but unfavorable to reported gross profit margins).



Selling, General and Administrative.    Selling, general and administrative expenses for fiscal year 2008 include $1.8 million
in amortization expense relating to acquisition-related intangible assets, $2.6 million in restructuring and other related costs and $8.5 million in share-based compensation expense. In comparison, selling, general and administrative expenses for
fiscal year 2007 include $2.6 million in amortization expense relating to acquisition-related intangible assets, $2.4 million in restructuring and other related costs and $8.9 million in share-based compensation expense. Excluding the impact of
these items, the slight decrease in selling, general and administrative expenses as a percentage of sales was primarily the result of sales volume leverage and lower employee bonus accruals, largely offset by the weaker U.S. dollar and higher costs
relating to new product introductions.



Research and
Development.    Research and development expenses for fiscal year 2008 include $1.3 million in restructuring and other related costs and share-based compensation expense of $0.4 million. In comparison, research and
development expenses for fiscal year 2007 include $0.8 million in restructuring and other related costs and share-based compensation expense of $0.5 million. Excluding the impact of these items, research and development expenses were flat as a
percentage of sales.



Purchased In-Process Research and
Development.    In connection with the Oxford Diffraction acquisition in the third quarter of fiscal year 2008, we recorded a one-time charge of $1.7 million to immediately expense acquired in-process research and development
related to projects that were in process but incomplete at the time of the acquisition.



Restructuring Activities.    Between fiscal years 2003 and 2007, we committed to several restructuring plans in order to adjust our organizational structure, improve operational efficiencies
and/or eliminate redundant or excess costs resulting from acquisitions or dispositions during those periods. We have incurred a total of $19.7 million in restructuring expense under these restructuring plans.



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The following table sets forth changes in our aggregate liability during fiscal year 2008 relating to all
restructuring plans:



|                                               |  |                  |        |   |                    |   |       |       |  |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | - | ------------------ | - | ----- | ----- |  | - | ------ | -
|                                               |  | Employee-Related |        |   | Facilities-Related |   |       | Total | 
|(in thousands)                                 |  |                  |        |   |                    |   |       |       |  |   |        |  
|Balance at September 28, 2007                  |  | $                | 2,222  |   |                    | $ | 707   |       |  | $ | 2,929  |  
|Charges to expense, net                        |  |                  | 1,291  |   |                    |   | 761   |       |  |   | 2,052  |  
|Cash payments                                  |  |                  | (1,702 | ) |                    |   | (408  | )     |  |   | (2,110 | )
|Foreign currency impacts and other adjustments |  |                  | 29     |   |                    |   | (16   | )     |  |   | 13     |  
|                                               |  |                  |        |   |                    |   |       |       |  |   |        |  
|Balance at October 3, 2008                     |  | $                | 1,840  |   |                    | $ | 1,044 |       |  | $ | 2,884  |  
|                                               |  |                  |        |   |                    |   |       |       |  |   |        |  



In addition, we have
also recorded other costs related directly to these plans (comprised primarily of employee retention and relocation costs and accelerated depreciation of assets to be disposed upon the closure of facilities) totaling $8.8 million. Of this amount, a
total of $3.4 million was recorded during fiscal year 2008.



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



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



Restructuring and
other related costs associated with this plan include one-time termination benefits, retention payments, costs to relocate facilities (including decommissioning costs, moving costs and temporary facility/storage costs), accelerated depreciation of
fixed assets to be disposed as a result of facilities actions and lease termination costs. These costs are currently estimated to be between $12.5 million and $15.5 million, of which $5.5 million was incurred in fiscal year 2008 and $4.3 million was
incurred in fiscal year 2007. The estimated remaining costs are expected to be settled through the second quarter of fiscal year 2010 except for certain lease termination-related costs, which might be settled as late as the fourth quarter of fiscal
year 2012. Costs relating to restructuring activities recorded under this plan have been included in cost of sales, selling, general and administrative expenses and research and development expenses.



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



|                                               |  |                  |        |   |                    |   |      |       |  |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | - | ------------------ | - | ---- | ----- |  | - | ------ | -
|                                               |  | Employee-Related |        |   | Facilities-Related |   |      | Total | 
|(in thousands)                                 |  |                  |        |   |                    |   |      |       |  |   |        |  
|Balance at September 28, 2007                  |  | $                | 2,222  |   |                    | $ |     |       |  | $ | 2,222  |  
|Charges to expense, net                        |  |                  | 1,291  |   |                    |   | 761  |       |  |   | 2,052  |  
|Cash payments                                  |  |                  | (1,702 | ) |                    |   | (252 | )     |  |   | (1,954 | )
|Foreign currency impacts and other adjustments |  |                  | 29     |   |                    |   | 42   |       |  |   | 71     |  
|                                               |  |                  |        |   |                    |   |      |       |  |   |        |  
|Balance at October 3, 2008                     |  | $                | 1,840  |   |                    | $ | 551  |       |  | $ | 2,391  |  
|                                               |  |                  |        |   |                    |   |      |       |  |   |        |  



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The restructuring charges of $2.1 million recorded during fiscal year 2008 related to employee
termination benefits and costs associated with the closure of leased facilities. We also incurred $3.4 million in other related costs during fiscal year 2008, which were comprised of $2.2 million in employee retention costs and $1.2 million in
facilities-related costs including decommissioning costs and a non-cash charge for accelerated depreciation of assets to be disposed upon the closure of facilities.



Since the inception of this plan, we have recorded $4.4 million in related restructuring expense and $5.4 million of other
related costs. Upon its completion, the plan is expected to result in certain operational improvements and efficiencies, which we anticipate will result in a reduction of our overall cost structure and annual operating expenses.



Fiscal Year 2009 Plan.    During the first quarter
of fiscal year 2009, we committed to a plan to reduce our employee headcount in order to reduce operating costs and increase margins. The plan involves the termination of approximately 35 employees, mostly located in Europe, and will result in
pretax restructuring and other related costs totaling between $2.5 million and $3.5 million. These costs will relate primarily to one-time termination benefits. We currently anticipate that these costs will be recorded and that the
related actions will be substantially completed in the first half of fiscal year 2009. The restructuring costs include no non-cash components and are expected to be settled by the end of fiscal year 2011.



Restructuring Cost Savings.    When they were
initiated, each of the foregoing restructuring plans was expected to eventually result in a reduction in annual operating expenses. The following table sets forth the estimated annual cost savings for each plan as well as where those cost savings
were expected to be realized:



|                                                                                                                                                                                                              |  |                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------
|Restructuring Plan                                                                                                                                                                                            |  | Estimated Annual Cost Savings
|Fiscal Year 2007 Plan (Scientific Instrumentsto combine and optimize the development and assembly on certain products and to centralize
functions and reallocate resources to rapidly growing product lines) |  | $3.0 million - $5.0 million  
|Fiscal Year 2009 Plan (Scientific Instrumentsto reduce headcount and operating costs and increase operating margins)                                                                                         |  | $2.0 million - $3.0 million  



These estimated cost
savings are expected to impact cost of sales, selling, general and administrative expenses and research and development expenses. Some of these cost savings have been and will continue to be reinvested in other parts of our business, for example, as
part of our continued emphasis on IRD and consumable products. In addition, unrelated cost increases in other areas of our operations have and could in the future offset some or all of these cost savings. Although it is difficult to quantify with
any precision our actual cost savings to date from these activities, many of which are still ongoing, we currently believe that the ultimate savings realized will not differ materially from these estimates.



Impairment of Private Company Equity
Investment.    During fiscal year 2008, we became aware of information which raised substantial doubt about the ability of a small, private company in which we hold a cost-method equity investment to continue as a going
concern. Based on this information, we determined that the fair value of our investment had declined and that the decline was other-than-temporary. As a result, we wrote off the entire $3.0 million carrying value via an impairment charge during
fiscal year 2008.



Income Tax
Expense.The effective income tax rate was 35.3% for fiscal year 2008, compared to 34.3% for fiscal year 2007. The higher effective income tax rate in fiscal year 2008 was primarily due to higher U.S. state taxes, higher
U.S. taxes on distributable foreign earnings, higher non-deductible compensation expense and a non-deductible in-process research and development charge related to an acquisition. These factors were partially offset by the benefit from a reduction
in unrecognized tax benefits due to the lapse of certain statutes of limitations in fiscal year 2008 and lower taxes on retained foreign earnings.



Net Earnings.    Net earnings for fiscal year 2008 included a non-deductible in-process research and development charge of $1.7
million and the after-tax impacts of an impairment of a private company equity investment of $3.0 million, $8.4 million in acquisition-related intangible amortization, $1.4 million in amortization related to inventory written up to fair value in
connection with recent acquisitions, $5.5 million in restructuring and other related costs and $9.3 million in share-based compensation expense. Net earnings for fiscal year 2007 included the after-tax impacts of $7.9 million in acquisition-related
intangible amortization, $1.3 million in amortization related to inventory written up to fair value in connection with



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the acquisition of IonSpec, $4.3 million in restructuring and other related costs and $9.8 million in share-based compensation expense. Excluding the
after-tax impact of these items, the increase in net earnings in fiscal year 2008 was primarily attributable to higher sales volume (including sales volume leverage on operating expenses), partially offset by higher transition costs related to the
relocation of manufacturing activities for certain products and higher costs relating to new product introductions.



Fiscal Year 2007 Compared to Fiscal Year 2006



Segment Results



The following table presents comparisons of our sales and operating earnings for each of our segments and in total for fiscal years 2007 and 2006:



|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |  
|------------------------------ |  | ----------------- | ----- | - | ------------------ | ----- | - | - | - | ----- | --------- |  | ----- | - |  | - | ---- | - |  | ----- | -
|                               |  | Fiscal Year Ended |       |   | Increase(Decrease) |      
|                               |  | September 28,2007 |       |   | September 29,2006  |       |  
|                               |  | $                 |       |   | % ofSales          |       |   | $ |   |       | % ofSales |  |       | $ |  |   | %    |  
|(dollars in millions)          |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |  
|Sales by Segment:              |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |  
|Scientific Instruments         |  | $                 | 761.5 |   |                    | 82.7  | % |   | $ | 686.0 |           |  | 82.2  | % |  | $ | 75.5 |   |  | 11.0  | %
|Vacuum Technologies            |  |                   | 159.1 |   |                    | 17.3  |   |   |   | 148.7 |           |  | 17.8  |   |  |   | 10.4 |   |  | 7.0   |  
|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |  
|Total company                  |  | $                 | 920.6 |   |                    | 100.0 | % |   | $ | 834.7 |           |  | 100.0 | % |  | $ | 85.9 |   |  | 10.3  | %
|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |  
|Operating Earnings by Segment: |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |  
|Scientific Instruments         |  | $                 | 79.4  |   |                    | 10.4  | % |   | $ | 60.3  |           |  | 8.8   | % |  | $ | 19.1 |   |  | 31.8  | %
|Vacuum Technologies            |  |                   | 32.0  |   |                    | 20.1  |   |   |   | 29.1  |           |  | 19.6  |   |  |   | 2.9  |   |  | 9.8   |  
|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |  
|Total segments                 |  |                   | 111.4 |   |                    | 12.1  |   |   |   | 89.4  |           |  | 10.7  |   |  |   | 22.0 |   |  | 24.7  |  
|General corporate              |  |                   | (18.8 | ) |                    | (2.1  | ) |   |   | (16.6 | )         |  | (2.0  | ) |  |   | (2.2 | ) |  | (13.9 | )
|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |  
|Total company                  |  | $                 | 92.6  |   |                    | 10.1  | % |   | $ | 72.8  |           |  | 8.7   | % |  | $ | 19.8 |   |  | 27.1  | %
|                               |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |       |  



Scientific
Instruments.    The increase in Scientific Instruments sales was primarily attributable to higher sales volume, in particular from mass spectrometers and other analytical instruments. Sales into environmental and energy
applications increased strongly, while sales into life science applications increased modestly. Scientific Instruments revenues for fiscal year 2006 do not include sales for the full period from PL International Limited (Polymer Labs),
which was acquired in November 2005. Excluding the impact of Polymer Labs, Scientific Instruments sales in fiscal year 2007 increased by approximately 10.7% compared to fiscal year 2006.



Scientific Instruments operating earnings for fiscal year 2007 include restructuring and other related costs of $4.3
million, acquisition-related intangible amortization of $7.9 million, share-based compensation expense of $3.4 million and amortization of $1.3 million related to inventory written up to fair value in connection with acquisitions. In comparison,
Scientific Instruments operating earnings for fiscal year 2006 include restructuring and other related costs of $0.2 million, an in-process research and development charge of $0.8 million relating to the acquisition of Polymer Labs,
acquisition-related intangible amortization of $8.3 million, share-based compensation expense of $3.5 million and amortization of $4.3 million related to inventory written up to fair value in connection with acquisitions. Excluding the impact of
these items, the increase in operating earnings as a percentage of sales resulted primarily from sales volume leverage and efficiency improvements benefiting selling, general and administrative expenses as well as the transition to internally
sourced magnets for certain of our research products.



Vacuum Technologies.    Vacuum Technologies sales increased primarily as a result of higher sales volume of products for life science applications.



Vacuum Technologies operating earnings for fiscal years 2007 and 2006 include the impact of share-based compensation expense
of $1.1 million in both periods. Excluding the impact of these items, the increase in operating earnings as a percentage of sales was primarily attributable to the impact of sales volume leverage on research and development expenses and, to a lesser
extent, selling, general and administrative expenses.



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Consolidated Results



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



|                                              |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|--------------------------------------------- |  | ----------------- | ----- | - | ------------------ | ----- | - | - | - | ----- | --------- |  | ----- | - |  | - | ---- | - |  | ------ | -
|                                              |  | Fiscal Year Ended |       |   | Increase(Decrease) |      
|                                              |  | September 28,2007 |       |   | September 29,2006  |       |  
|                                              |  | $                 |       |   | % ofSales          |       |   | $ |   |       | % ofSales |  |       | $ |  |   | %    |  
|(dollars in millions, except per share data)  |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Sales                                         |  | $                 | 920.6 |   |                    | 100.0 | % |   | $ | 834.7 |           |  | 100.0 | % |  | $ | 85.9 |   |  | 10.3   | %
|                                              |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Gross profit                                  |  |                   | 415.5 |   |                    | 45.1  |   |   |   | 374.3 |           |  | 44.8  |   |  |   | 41.2 |   |  | 11.0   |  
|                                              |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Operating expenses:                           |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Selling, general and administrative           |  |                   | 257.8 |   |                    | 28.0  |   |   |   | 241.0 |           |  | 28.9  |   |  |   | 16.8 |   |  | 6.9    |  
|Research and development                      |  |                   | 65.2  |   |                    | 7.0   |   |   |   | 59.7  |           |  | 7.1   |   |  |   | 5.5  |   |  | 9.1    |  
|Purchased in-process research and development |  |                   |      |   |                    |      |   |   |   | 0.8   |           |  | 0.1   |   |  |   | (0.8 | ) |  | (100.0 | )
|                                              |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Total operating expenses                      |  |                   | 323.0 |   |                    | 35.0  |   |   |   | 301.5 |           |  | 36.1  |   |  |   | 21.5 |   |  | 7.1    |  
|                                              |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Operating earnings                            |  |                   | 92.5  |   |                    | 10.1  |   |   |   | 72.8  |           |  | 8.7   |   |  |   | 19.7 |   |  | 27.1   |  
|Interest income                               |  |                   | 6.2   |   |                    | 0.7   |   |   |   | 4.0   |           |  | 0.5   |   |  |   | 2.2  |   |  | 53.0   |  
|Interest expense                              |  |                   | (1.9  | ) |                    | (0.2  | ) |   |   | (2.2  | )         |  | (0.3  | ) |  |   | 0.3  |   |  | (13.6  | )
|Income tax expense                            |  |                   | (33.2 | ) |                    | (3.7  | ) |   |   | (24.5 | )         |  | (2.9  | ) |  |   | (8.7 | ) |  | 35.0   |  
|                                              |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Net earnings                                  |  | $                 | 63.6  |   |                    | 6.9   | % |   | $ | 50.1  |           |  | 6.0   | % |  | $ | 13.5 |   |  | 27.1   | %
|                                              |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  
|Net earnings per diluted share                |  | $                 | 2.05  |   |                    |       |   |   | $ | 1.59  |           |  |       |   |  | $ | 0.46 |   |  |        |  
|                                              |  |                   |       |   |                    |       |   |   |   |       |           |  |       |   |  |   |      |   |  |        |  



Sales.    As discussed under the heading Segment Results above, sales by the Scientific Instruments and Vacuum Technologies segments in fiscal year 2007 increased by 11.0% and 7.0%, respectively, compared
to fiscal year 2006. On a consolidated basis, sales grew 10.3% in fiscal year 2007, with strong growth into environmental, energy, and applied research and other applications and modest growth into life science applications. Revenues for fiscal year
2006 do not include sales for the full twelve months from Polymer Labs, which was acquired in November 2005. Excluding the impact of Polymer Labs, sales in fiscal year 2007 increased by approximately 10.1% compared to fiscal year 2006.



Sales by geographic region in fiscal years 2007 and 2006 were as follows:



|                            |  |                   |       |           |                    |   |   |   |           |  |       |   |  |   |       |   |  |      |   
|--------------------------- |  | ----------------- | ----- | --------- | ------------------ | - | - | - | --------- |  | ----- | - |  | - | ----- | - |  | ---- | --
|                            |  | Fiscal Year Ended |       |           | Increase(Decrease) |  
|                            |  | September 28,2007 |       |           | September 29,2006  |   |  
|                            |  | $                 |       | % ofSales |                    |   | $ |   | % ofSales |  |       | $ |  |   | %     |  
|(dollars in millions)       |  |                   |       |           |                    |   |   |   |           |  |       |   |  |   |       |   |  |      |   
|Sales by Geographic Region: |  |                   |       |           |                    |   |   |   |           |  |       |   |  |   |       |   |  |      |   
|North America               |  | $                 | 312.1 |           | 33.9               | % |   | $ | 325.5     |  | 39.0  | % |  | $ | (13.4 | ) |  | (4.1 | )%
|Europe                      |  |                   | 376.8 |           | 40.9               |   |   |   | 309.6     |  | 37.1  |   |  |   | 67.2  |   |  | 21.7 |   
|Asia Pacific                |  |                   | 185.6 |           | 20.2               |   |   |   | 163.6     |  | 19.6  |   |  |   | 22.0  |   |  | 13.4 |   
|Latin America               |  |                   | 46.1  |           | 5.0                |   |   |   | 36.0      |  | 4.3   |   |  |   | 10.1  |   |  | 28.1 |   
|                            |  |                   |       |           |                    |   |   |   |           |  |       |   |  |   |       |   |  |      |   
|Total company               |  | $                 | 920.6 |           | 100.0              | % |   | $ | 834.7     |  | 100.0 | % |  | $ | 85.9  |   |  | 10.3 | % 
|                            |  |                   |       |           |                    |   |   |   |           |  |       |   |  |   |       |   |  |      |   



The increases in sales
in Europe, Asia Pacific and Latin America were primarily attributable to stronger demand across a broad range of our products, in particular analytical instruments and vacuum products. The weaker U.S. dollar also had a positive effect on the
reported sales increases in these regions. In Europe, higher sales of research products also contributed to the increase.



We believe the reduction in sales in North America was primarily due to a general trend in many industries of manufacturing moving out of the U.S. for
cost and tax reasons, which was in part due to consolidations and a shift in pharmaceutical research and manufacturing to the Asia Pacific region. While this trend negatively impacted sales in North America in fiscal year 2007, it probably benefited
us in Asia Pacific.



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In addition to the factors described above, the sales decrease in North America and increase in Europe
compared to fiscal year 2006 were both more pronounced, and the sales increase in Asia Pacific was less pronounced, due to the timing of sales of certain low-volume, high-selling price research products. We do not consider these geographic shifts to
be indicative of any particular trend for research products as a whole, but rather to be reflective of the variability in results that these low-volume, high-selling price research products can create.



Gross Profit.    Gross profit for fiscal year 2007
reflects the impact of $5.3 million in amortization expense relating to acquisition-related intangible assets, $1.3 million in amortization expense related to inventory written up to fair value in connection with the IonSpec acquisition, share-based
compensation expense of $0.4 million and $1.2 million in restructuring and other related costs. In comparison, gross profit for fiscal year 2006 reflects the impact of $5.1 million in amortization expense relating to acquisition-related intangible
assets, $4.3 million in amortization expense related to inventory written up to fair value in connection with the IonSpec, Polymer Labs and Magnex acquisitions and share-based compensation expense of $0.4 million. Excluding the impact of these
items, gross profit as a percentage of sales in fiscal year 2007 was unchanged from fiscal year 2006.



Selling, General and Administrative.    Selling, general and administrative expenses for fiscal year 2007 included $2.6 million
in amortization expense relating to acquisition-related intangible assets, $2.4 million in restructuring and other related costs and $8.9 million in share-based compensation expense. In comparison, selling, general and administrative expenses for
fiscal year 2006 included $3.3 million in acquisition-related intangible amortization, $0.2 million in restructuring and other related costs and $7.7 million in share-based compensation expense. Excluding the impact of these items, selling, general
and administrative expenses were lower as a percentage of sales in fiscal year 2007 primarily as a result of sales volume leverage and efficiency improvements resulting from cost reduction activities.



Research and Development.    Research and
development expenses for fiscal year 2007 include $0.8 million in restructuring and other related costs and $0.5 million in share-based compensation expense. In comparison, research and development expenses for fiscal year 2006 include share-based
compensation expense of $0.5 million. Excluding the impact of these items, research and development expenses were slightly lower as a percentage of sales due to sales volume leverage. In absolute dollars, the increase in research and development
expenses resulted primarily from the acquisitions of Polymer Labs in the first quarter of fiscal year 2006 and IonSpec in the second quarter of fiscal year 2006 and higher spending on new product development primarily for information rich detection
products.



Restructuring
Activities.    Between fiscal years 2003 and 2007, we committed to several restructuring plans in order to adjust our organizational structure, improve operational efficiencies and/or eliminate redundant or excess costs
resulting from acquisitions or dispositions during those periods. We have incurred a total of $17.6 million in restructuring expense under these restructuring plans.



The following table sets forth changes in our aggregate liability during fiscal year 2007 relating to all restructuring
plans:



|                                               |  |                  |       |   |                    |   |      |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | ----- | - | ------------------ | - | ---- | ----- |  | - | ----- | -
|                                               |  | Employee-Related |       |   | Facilities-Related |   |      | Total | 
|(in thousands)                                 |  |                  |       |   |                    |   |      |       |  |   |       |  
|Balance at September 29, 2006                  |  | $                | 233   |   |                    | $ | 818  |       |  | $ | 1,051 |  
|Charges to expense, net                        |  |                  | 2,321 |   |                    |   |     |       |  |   | 2,321 |  
|Cash payments                                  |  |                  | (393  | ) |                    |   | (127 | )     |  |   | (520  | )
|Foreign currency impacts and other adjustments |  |                  | 61    |   |                    |   | 16   |       |  |   | 77    |  
|                                               |  |                  |       |   |                    |   |      |       |  |   |       |  
|Balance at September 28, 2007                  |  | $                | 2,222 |   |                    | $ | 707  |       |  | $ | 2,929 |  
|                                               |  |                  |       |   |                    |   |      |       |  |   |       |  



In addition, we have
also recorded other costs related directly to these plans (comprised primarily of employee retention and relocation costs and accelerated depreciation of assets to be disposed upon the closure of facilities) totaling $5.4 million. Of this amount, a
total of $2.0 million was recorded during fiscal year 2007.



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Fiscal Year 2007 Plan.    The following table sets forth changes in our
restructuring liability relating to the fiscal year 2007 Plan:



|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | ----- | - | ------------------ | - | ----- |  | - | ----- | -
|                                               |  | Employee-Related |       |   | Facilities-Related |   | Total | 
|(in thousands)                                 |  |                  |       |   |                    |   |       |  |   |       |  
|Balance at September 29, 2006                  |  | $                |      |   |                    | $ |      |  | $ |      |  
|Charges to expense, net                        |  |                  | 2,301 |   |                    |   |      |  |   | 2,301 |  
|Cash payments                                  |  |                  | (145  | ) |                    |   |      |  |   | (145  | )
|Foreign currency impacts and other adjustments |  |                  | 66    |   |                    |   |      |  |   | 66    |  
|                                               |  |                  |       |   |                    |   |       |  |   |       |  
|Balance at September 28, 2007                  |  | $                | 2,222 |   |                    | $ |      |  | $ | 2,222 |  
|                                               |  |                  |       |   |                    |   |       |  |   |       |  



The restructuring
charges of $2.3 million recorded during fiscal year 2007 related to employee termination benefits. In addition, we incurred $2.0 million in other costs relating directly to this restructuring plan during fiscal year 2007. These costs were comprised
of a $0.7 million non-cash charge for accelerated depreciation of assets to be disposed upon the closure of facilities as well as $0.8 million in employee retention costs and $0.5 million in other facility-related costs, both of which will be
settled in cash.



Interest
Income.The increase in interest income was primarily due to higher average invested cash balances and higher rates of interest on those balances during fiscal year 2007 compared to fiscal year 2006.



Income Tax Expense.The effective income tax
rate was 34.3% for fiscal year 2007, compared to 32.9% for fiscal year 2006. The lower effective income tax rate in fiscal year 2006 was primarily due to a net reduction of $1.8 million in tax reserves resulting from the positive outcome of tax
uncertainties during that period, partially offset by the negative impact of a $0.8 million non-deductible in-process research and development charge recorded during the same period.



Net Earnings.    Net earnings for fiscal year 2007 include $9.8 million in share-based
compensation expense, $7.9 million in acquisition-related intangible amortization, $4.3 million in restructuring and other related costs and $1.3 million in amortization related to inventory written up to fair value in connection with recent
acquisitions. Net earnings for fiscal year 2006 include $8.7 million in share-based compensation expense, $8.3 million in acquisition-related intangible amortization, $4.3 million in amortization related to inventory written up to fair value in
connection with recent acquisitions, $0.2 million in restructuring and other related costs and an in-process research and development charge of $0.8 million. Excluding the impact of these items, the increase in net earnings in fiscal year 2007
resulted primarily from higher sales volume and lower selling, general and administrative expenses as a percentage of sales.



Outlook



We completed our fourth quarter and fiscal year 2008 with sound orders, revenues, net earnings and cash flow, and believe that we are well positioned, with a broad portfolio of products and applications, several
recently released new products, an agile global distribution network, a recurring stream of after-sales revenue and, if they hold, favorable currency exchange rates relative to the U.S. dollar. However, we are concerned by increasingly negative
economic indicators and the likelihood that economic conditions will get significantly worse and have an adverse effect on our financial position, results of operations and/or cash flows. These conditions present significant uncertainties that make
it difficult for us to project our near-term results of operations.



Critical Accounting Policies



The preparation
of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires us to exercise certain judgments in selecting and applying accounting policies and methods. The following is a summary of what we
consider to be our most critical accounting policiesthose that are most important to the portrayal of our financial condition and results of operations and that require our most difficult, subjective or complex judgmentsthe effects of
those accounting policies applied and the judgments made in their application.



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Revenue Recognition.    We derive revenues from product sales (including
accessory sales) and services. We recognize revenue on product sales and accessory sales when persuasive evidence of an arrangement exists, the contract price is fixed or determinable, the product or accessory has been delivered, title and risk of
loss have passed to the customer and collection of the resulting receivable is reasonably assured. Our sales are typically not subject to rights of return and, historically, actual sales returns have not been significant. Product sales that do not
involve unique customer acceptance terms or new specifications or technology with customer acceptance provisions, but that do involve installation services, are accounted for as multiple-element arrangements, where the larger of the contractual
billing holdback or the fair value of the installation service is deferred when the product is delivered and subsequently recognized when the installation is complete. For certain other product sales that do involve unique customer acceptance terms
or new specifications or technology with customer acceptance provisions, all revenue is deferred until all contractually required customer acceptance provisions and product specifications have been satisfied. Revenue related to service contracts is
recognized ratably over the term of the contracts. Unearned maintenance and service contract revenue is included in accrued liabilities on the accompanying Consolidated Balance Sheet. Revenue related to incident-based paid service and training
services is recognized when the related services are provided to the customer.



In all cases, the fair value of undelivered elements is deferred until those items are delivered to the customer. Sales arrangements involving undelivered elements are primarily confined to the Scientific Instruments
segment and involve product accessories, installation services and/or training services that are delivered after the related product has been delivered. Product accessories generally enhance the functionality of the product but are not essential to
the functionality of the product. In determining relative fair values for product accessories and training services, we utilize published price list values as the basis for allocating the overall arrangement consideration. List prices are
representative of fair value, as stand-alone sales of products, product accessories and training have occurred at list price. The fair value of installation services is calculated by applying standard service billing rates to the estimate of the
number of hours to install a specific product based on historical experience. Estimates of installation hours have historically been accurate.



In limited cases, product accessories ordered by customers may not have an established list price, as the item may be a new or slightly modified accessory
with no prior sales history. In these limited cases, we consider whether a comparable or substitute accessory that provides similar functionality exists for which fair value has been established and then use that comparable or substitute
accessorys list price in estimating the fair value of the undelivered elements. If such conditions do not exist, all arrangement revenue is deferred until the undelivered element is delivered; however, such cases are infrequent and arise from
a significant technological advance that creates products or product accessories without a suitable comparable or substitute accessory from which to derive fair value.



We determine when and how much revenue may be recognized on a particular transaction in a particular period based on our best estimates of
the fair value of undelivered elements and our judgment of when our performance obligations have been met as outlined above. These judgments and estimates impact reported revenues.



Allowances for Doubtful Accounts Receivable.    We sell our products and extend trade credit to a
large number of customers. These customers are dispersed across many different industries and geographies and, historically, no single customer has accounted for 10% or more of our total revenues or trade accounts receivable. We perform ongoing
credit evaluations of our customers and generally do not require collateral from them. Although bad debt write-offs have historically been insignificant, allowances are established for amounts that are considered to be uncollectible. These
allowances represent our best estimates and are based on our judgment after considering a number of factors including third-party credit reports, actual payment history, customer-specific financial information and broader market and economic trends
and conditions. In the event that actual uncollectible amounts differ from these best estimates, changes in allowances for doubtful accounts might become necessary.



Inventory Valuation.    Inventories are stated at the lower of cost or market, with cost being
computed on an average-cost basis. Provisions are made to write down potentially excess, obsolete or slow-moving inventories to their net realizable value. These provisions are based on our best estimates after considering historical demand,
projected future demand (including current backlog), inventory purchase commitments,



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industry and market trends and conditions and other factors. In the event that actual excess, obsolete or slow-moving inventories differ from these best
estimates, increases to inventory reserves might become necessary.



Product Warranty.    Our products are generally subject to warranties and liabilities are therefore established for the estimated future costs of repair or replacement through charges to cost of sales at the time
the related sale is recognized. These liabilities are adjusted based on our best estimates of future warranty costs after considering historical and projected product failure rates and product repair costs. In the event that actual experience
differs from these best estimates, changes in our warranty liabilities might become necessary.



Environmental Liabilities.    As discussed more fully in Item 1Business and Item 1ARisk FactorsEnvironmental Matters, we entered into a
Distribution Agreement in connection with becoming a separate, public company on April 2, 1999. Under the terms of that Distribution Agreement, we are obligated to indemnify Varian Medical Systems, Inc. (VMS) for one-third of
certain environmental investigation, monitoring and/or remediation costs (after adjusting for any insurance proceeds and tax benefits recognized or realized by VMS for such costs). The liabilities recorded by us relating to these matters are based
on our best estimates after considering currently available information regarding the cost and timing of remediation efforts, related legal matters, insurance recoveries and other environmental-related events. As additional information becomes
available, these amounts are adjusted accordingly. Should the cost or timing of remediation efforts, legal matters, insurance recoveries or other environmental-related events (including any which may be currently unidentified) differ from our
current expectations and best estimates, changes to our reserves for environmental matters might become necessary.



Share-based Compensation.    We adopted SFAS 123(R) in the first quarter of fiscal year 2006. SFAS 123(R) requires the
measurement and recognition of compensation expense for all share-based payment awards including employee stock options and shares issued under our employee stock purchase plan based on estimated fair values. Under SFAS 123(R), we estimate the value
of share-based payments on the date of grant using the Black-Scholes model, which was also used previously for the purpose of providing pro forma financial information as required under SFAS 123. The determination of the fair value of, and the
timing of expense relating to, share-based payment awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of variables including the expected term of awards, expected stock
price volatility and expected forfeitures.



In determining
the Companys expected stock price volatility assumption, the Company reviews both the historical and implied volatility of the Companys common stock, with implied volatility based on publicly traded options on the
Companys common stock. Unless the volume or maturity of these publicly traded options does not satisfy the conditions to use implied volatility under SAB 107, we determine the expected stock price volatility assumptions using a
combination of historical and implied volatility. SFAS 123(R) also requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate expected
forfeitures, as well as the expected term of awards, based on historical experience. Future changes in these assumptions, our stock price or certain other factors could result in changes in our share-based compensation expense in future periods.



Income Taxes.    We are subject to
income taxes in the U.S. and numerous jurisdictions outside of the U.S. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes as well as in assessing the realizability of our deferred tax
assets. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish liabilities for unrecognized tax benefits, as well as reserves for related potential
penalties and interest, based on the technical merits of our tax positions and the extent to which, additional taxes, penalties and interest will be due. These unrecognized tax benefits are established when, despite our belief that our tax return
positions are fully supportable, certain positions can be challenged and may not be sustained on review by tax authorities. These balances are adjusted in light of changing facts and circumstances. Our income tax expense includes the impact of new
unrecognized tax benefits recorded as well as changes to existing unrecognized tax benefits that are considered appropriate. Should the ultimate resolution of any tax-related uncertainties (including any which may be currently unidentified) differ
from those we used to determine our recorded liabilities, charges against or credits to our unrecognized tax benefits and/or income tax provision will become necessary.



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Our judgments regarding the realizability of deferred tax assets are based on, among other things, the
relative weight of both positive and negative evidence regarding future taxable income, and may change due to changes in market conditions, tax laws, tax planning strategies or other factors. Should our assumptions and consequently our estimates in
this area change in the future, the amount of valuation allowances recorded relating to our deferred tax assets may be increased or decreased, which would result in charges against or credits to our income tax provision.



Liquidity and Capital Resources



We generated $79.0 million of cash from operating activities in fiscal year
2008, compared to $99.9 million generated in fiscal year 2007. Cash generated from operating activities decreased primarily due to relative increases in inventories ($19.8 million) and accounts receivable ($13.3 million). The relative increase in
inventories was primarily due to a build-up of inventory to support increased orders, new product introductions and the transition of certain products to new manufacturing locations, while the relative increase in accounts receivable was primarily
due to a higher sales volume during fiscal year 2008.



We used
$77.4 million of cash for investing activities in fiscal year 2008, which compares to $24.5 million used for investing activities in fiscal year 2007. The increase in cash used for investing activities in fiscal year 2008 was primarily the result of
the acquisitions of the Analogix Business in November 2007 and Oxford Diffraction in April 2008 as well as higher net capital expenditures due primarily to the construction of our IRD center in Walnut Creek, California.



We used $94.6 million of cash for financing activities in fiscal year 2008,
which compares to $48.9 million used for financing activities in fiscal year 2007. The increase in cash used for financing activities in fiscal year 2008 was primarily due to higher expenditures to repurchase and retire common stock (such
expenditures were made in both periods as a result of a continued effort to utilize excess cash to reduce the number of outstanding common shares), lower proceeds from the issuance of common stock (due to lower stock option exercise volume) and
higher repayments of debt.



We maintain relationships with
banks in many countries from which we sometimes obtain bank guarantees and short-term standby letters of credit. These guarantees and letters of credit relate primarily to advance payments and deposits made to our subsidiaries by customers for which
separate liabilities are recorded in the consolidated financial statements. As of October 3, 2008, a total of $21.2 million of these bank guarantees and letters of credit were outstanding. No amounts had been drawn by beneficiaries under these
or any other outstanding guarantees or letters of credit as of that date.



As of October 3, 2008, we had an $18.8 million term loan outstanding with a U.S. financial institution. The balance outstanding under this term loan was $25.0 million at September 28, 2007. As of both
October 3, 2008 and September 28, 2007, the fixed interest rate on the term loan was 6.7%. The term loan contains certain covenants that limit future borrowings and the payment of cash dividends and require the maintenance of certain
levels of working capital and operating results. We were in compliance with all restrictive covenants of the term loan agreement at October 3, 2008.



In connection with certain acquisitions, we have accrued a portion of the purchase price that has been retained to secure the respective sellers
indemnification obligations. As of October 3, 2008, we had retained an aggregate of $1.6 million, which will become payable (net of any indemnification claims) between April and November 2009. In addition to the above amounts, the final $0.7 million
retained in connection with the acquisition of IonSpec in February 2006 was paid during fiscal year 2008.



As of October 3, 2008, we had several outstanding contingent consideration arrangements relating to acquired businesses. Amounts subject to these
arrangements can be earned over the respective measurement period, depending on the performance of the acquired business relative to certain financial and/or operational targets.



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The following table summarizes contingent consideration arrangements as of October 3, 2008:



|                      |  |                                   |  |                   |  |                            
|--------------------- |  | --------------------------------- |  | ----------------- |  | ---------------------------
|Acquired Business     |  | RemainingAmountAvailable(maximum) |  | MeasurementPeriod |  | Measurement Period End Date
|                      |  | (in millions)                     |  |                   |  |                            
|PL International Ltd. |  | $15.3                             |  | 3 years           |  | December 2008              
|IonSpec Corporation   |  | 14.0                              |  | 3 years           |  | April 2009                 
|Oxford Diffraction    |  | 10.0                              |  | 3 years           |  | April 2011                 
|Analogix Business     |  | 4.0                               |  | 3 years           |  | December 2010              
|Other                 |  | 0.6                               |  | 2 years           |  | July 2010                  
|                      |  |                                   |  |                   |  |                            
|Total                 |  | $43.9                             |  |                   |  |                            
|                      |  |                                   |  |                   |  |                            



During fiscal year
2008, we paid $4.0 million for the final contingent consideration payment related to Magnex Scientific Limited, which we acquired in November 2004.



The Distribution Agreement provides that we are responsible for certain litigation to which VAI was a party, and further provides that we will indemnify
VMS and VSEA for one-third of the costs, expenses and other liabilities relating to certain discontinued, former and corporate operations of VAI, including certain environmental liabilities (see Note 12 of the Notes to the Consolidated Financial
Statements).



As of October 3, 2008, we had cancelable
commitments to a contractor for capital expenditures totaling approximately $17.9 million relating to the construction of our IRD center in Walnut Creek, California. In the event that these commitments are canceled for reasons other than the
contractors default, we may be responsible for reimbursement of actual costs incurred by the contractor. We had no material non-cancelable commitments for capital expenditures as of October 3, 2008. In the aggregate, we currently
anticipate that our capital expenditures will be approximately 2.5% to 3.0% of sales in fiscal year 2009.



As discussed above under the heading Restructuring Activities, in April 2007, we committed to a plan to combine and optimize the development and
assembly of most of our NMR and mass spectrometry products, to further centralize related administration and other functions and to reallocate certain resources toward more rapidly growing product lines and geographies. In connection with this plan,
we expect to make capital expenditures of up to $30.7 million, of which $9.8 million has been spent through October 3, 2008. These capital expenditures began in the fourth quarter of fiscal year 2007 and will continue through fiscal year 2009.
We also expect to incur total restructuring and other related costs associated with this plan of between $12.0 million and $15.0 million, of which $5.5 million was incurred in fiscal year 2008 and $4.3 million was incurred in fiscal year 2007. Some
portion of these costs is expected to be settled through the fourth quarter of fiscal year 2009, except for certain lease termination-related costs, which might be settled as late as the fourth quarter of fiscal year 2012. A total of $10.5 million
to $13.0 million of these costs are expected to result in cash expenditures, of which a total of $5.2 million was paid in fiscal year 2008 and $0.2 million was paid in fiscal year 2007.



In October 2008, we entered into an agreement with VMS under which we agreed to surrender to them for $21 million the
sublease for our facility in Palo Alto, California. We received $5 million of the amount payable under this agreement in the first quarter of fiscal year 2009 and will receive the remaining $16 million when we fully vacate the facility in the third
quarter of fiscal year 2010.



In February 2008, our Board of
Directors approved a new stock repurchase program under which we are authorized to utilize up to $100 million to repurchase shares of our common stock. This repurchase program is effective through December 31, 2009. During fiscal year 2008, we
repurchased and retired 1,070,000 shares under this authorization at an aggregate cost of $55.4 million. As of October 3, 2008, we had remaining authorization to repurchase $44.6 million of our common stock under this repurchase program.



In January 2007, our Board of Directors approved a stock
repurchase program under which we were authorized to utilize up to $100 million to repurchase shares of our common stock. This repurchase program was effective until December 31, 2008. During fiscal year 2008, we repurchased and retired 876,000
shares under this repurchase program at an aggregate cost of $50.4 million, which completed this repurchase program.



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Our liquidity is affected by many other factors, some based on the normal ongoing operations of our
business and others related to the uncertainties of the industries and economies in which we operate. Our liquidity has not been materially affected by the recent deterioration in the global financial markets or global economic conditions in
general. However, this deterioration has adversely impacted the availability and cost of credit to us as well as our customers and suppliers.



We have no material exposure to market risk for changes in interest rates or investment valuations. We invest our excess cash primarily in depository
accounts, short-term U.S. Treasury securities and money market funds. Our outstanding debt carries a fixed interest rate. While we have not historically needed to borrow to support working capital or capital expenditure requirements, there is no
assurance that we might not need to borrow to support these requirements given global economic uncertainties. This could also adversely affect our ability to complete acquisitions and repurchase our common stock.



Notwithstanding the above, we believe that cash generated from operations,
together with our current cash and cash equivalents balances and current borrowing capability, will be sufficient to satisfy our cash requirements for the next 12 months. There can be no assurance, however, that our business will continue to
generate cash flows at current levels or that credit will be available to us if and when needed. Future operating performance and our ability to obtain credit will be subject to future economic conditions and to financial, business and other
factors, many of which are beyond our control.



Contractual Obligations and
Other Commercial Commitments



The following table
summarizes the amount and estimated timing of future cash expenditures relating to principal payments on outstanding long-term debt, minimum rentals due for certain facilities and other leased assets under long-term, non-cancelable operating leases
and other long-term liabilities as of October 3, 2008:



|                                          |  |              |       |      |   |        |  |      |       |      |   |            |  |       |       |  |   |        |  |   |       
|----------------------------------------- |  | ------------ | ----- | ---- | - | ------ |  | ---- | ----- | ---- | - | ---------- |  | ----- | ----- |  | - | ------ |  | - | ------
|                                          |  | Fiscal Years |       |     
|                                          |  | 2009         |       | 2010 |   | 2011   |  | 2012 |       | 2013 |   | Thereafter |  | Total
|(in thousands)                            |  |              |       |      |   |        |  |      |       |      |   |            |  |       |       |  |   |        |  |   |       
|Operating leases                          |  | $            | 8,602 |      | $ | 6,473  |  | $    | 3,303 |      | $ | 2,040      |  | $     | 1,621 |  | $ | 3,380  |  | $ | 25,419
|Long-term debt(including current portion) |  |              |      |      |   | 6,250  |  |      |      |      |   | 6,250      |  |       |      |  |   | 6,250  |  |   | 18,750
|Other long-term liabilities               |  |              |      |      |   | 5,468  |  |      | 4,197 |      |   | 3,593      |  |       | 2,785 |  |   | 27,389 |  |   | 43,432
|                                          |  |              |       |      |   |        |  |      |       |      |   |            |  |       |       |  |   |        |  |   |       
|Total                                     |  | $            | 8,602 |      | $ | 18,191 |  | $    | 7,500 |      | $ | 11,883     |  | $     | 4,406 |  | $ | 37,019 |  | $ | 87,601
|                                          |  |              |       |      |   |        |  |      |       |      |   |            |  |       |       |  |   |        |  |   |       



As of October 3,
2008, we did not have any off-balance sheet commercial commitments that could result in a significant cash outflow upon the occurrence of some contingent event, except for contingent payments of up to a maximum of $43.9 million related to
acquisitions as discussed under Liquidity and Capital Resources above, the specific amounts of which are not currently determinable.



Recent Accounting Pronouncements



In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies to previous accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007, with certain exceptions which are described below. In February 2008, the FASB issued FASB Staff Position (FSP) 157-1,Application of FASB Statement No. 157 to FASB Statement No. 13 and
Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which amends SFAS 157 to exclude certain leasing transactions from its scope. Also in February 2008, the
FASB issued FSP 157-2, Effective Date of FASB Statement No. 157,which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008,
except for items that are



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recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). In October 2008, the FASB issued FSP No. 157-3,
Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active. FSP 157-3 provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial
asset is not active. We do not expect the adoption of SFAS 157 to have a material impact on our financial condition or results of operations.



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



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



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



In March 2008, the FASB issued SFAS 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133,which requires additional disclosures about the objectives and strategies of the derivative instruments and hedging activities, the method of
accounting for such instruments under SFAS 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial condition and results of operations. SFAS 161 is
effective for fiscal years beginning after November 15, 2008. We do not expect the adoption of SFAS 161 to have a material impact on our financial condition or results of operations.



In April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible Assets, which amends the
factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of FSP 142-3 is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142, Goodwill and Other Intangible Assets, and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), Business Combinations, and other accounting literature.
FSP 142-3 is effective for fiscal



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years beginning after December 15, 2008 and must be applied prospectively to intangible assets acquired after the effective date. Early adoption is
prohibited. Given that FSP 142-3 applies to intangible assets acquired after the effective date, we are not able to determine whether its adoption will have a material impact on our financial condition or results of operations.



Item 7A.    Quantitative and Qualitative
Disclosures About Market Risk



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



At October 3, 2008, there were no outstanding forward contracts designated as cash flow hedges of forecasted transactions. During the fiscal year
ended October 3, 2008, no foreign exchange gains or losses from cash flow hedge ineffectiveness were recognized.



Our foreign exchange forward contracts generally range from one to 12 months in original maturity. A summary of all foreign exchange forward contracts
that were outstanding as of October 3, 2008 follows:



|                  |  |                   |       |                        |   |        
|----------------- |  | ----------------- | ----- | ---------------------- | - | -------
|                  |  | NotionalValueSold |       | NotionalValuePurchased
|(in thousands)    |  |                   |       |                        |   |        
|Australian dollar |  | $                 |      |                        | $ | 46,334 
|Euro              |  |                   |      |                        |   | 39,907 
|British pound     |  |                   |      |                        |   | 17,374 
|Japanese yen      |  |                   | 4,822 |                        |   |       
|Swedish krona     |  |                   |      |                        |   | 2,788  
|Canadian dollar   |  |                   | 2,460 |                        |   |       
|Korean won        |  |                   | 1,895 |                        |   |       
|                  |  |                   |       |                        |   |        
|Total             |  | $                 | 9,177 |                        | $ | 106,403
|                  |  |                   |       |                        |   |        



Interest Rate
Risk.    We have no material exposure to market risk for changes in interest rates. We invest our excess cash primarily in short-term U.S. Treasury securities and money market funds, and changes in interest rates would not be
material to our financial condition or results of operations. We enter into debt obligations principally to support general corporate purposes, including working capital requirements, capital expenditures and acquisitions. At October 3, 2008,
our debt obligations had fixed interest rates.



Based upon
rates currently available to us for debt with similar terms and remaining maturities, the carrying amount of long-term debt approximates the estimated fair value.



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



Debt
Obligations.



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



|                                          |  |              |   |   |       |   |       |      |  |   |      |   |  |      |       |   |            |   |   |   |  |   |       |   |  |   |        |  
|----------------------------------------- |  | ------------ | - | - | ----- | - | ----- | ---- |  | - | ---- | - |  | ---- | ----- | - | ---------- | - | - | - |  | - | ----- | - |  | - | ------ | -
|                                          |  | Fiscal Years |   |   | Total |  
|                                          |  | 2009         |   |   | 2010  |   |       | 2011 |  |   | 2012 |   |  | 2013 |       |   | Thereafter |   |  
|(in thousands)                            |  |              |   |   |       |   |       |      |  |   |      |   |  |      |       |   |            |   |   |   |  |   |       |   |  |   |        |  
|Long-term debt(including current portion) |  | $            |  |   |       | $ | 6,250 |      |  | $ |     |   |  | $    | 6,250 |   |            | $ |  |   |  | $ | 6,250 |   |  | $ | 18,750 |  
|Average interest rate                     |  |              |  | % |       |   | 6.7   | %    |  |   |     | % |  |      | 6.7   | % |            |   |  | % |  |   | 6.7   | % |  |   | 6.7    | %



36



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##### Table of Contents

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



For our defined benefit pension plans, we make assumptions regarding several variables including the expected long-term rate of return on plan assets and
the discount rate in order to determine defined benefit pension plan expense for the year. This expense is referred to as net periodic pension cost. We assess the expected long-term rate of return on plan assets and discount rate
assumption for each defined benefit plan based on relevant market conditions as prescribed by SFAS 87 and make adjustments to the assumptions as appropriate. On an annual basis, we analyze the rates of return on plan assets and discount rates used
and determine that these rates are reasonable. For rates of return, this analysis is based on a review of the nature of the underlying assets, the allocation of those assets and their historical performance relative to the overall markets in the
countries where the related plans are effective. Historically, our assumed asset allocations have not varied significantly from the actual allocations. Discount rates are based on the prevailing market long-term interest rates in the countries where
the related plans are effective. As of October 3, 2008, the estimated long-term rate of return on our defined benefit pension plan assets ranged from 0.8% to 7.1% (weighted-average of 5.8%), and the assumed discount rate for our defined benefit
pension plan obligations ranged from 2.0% to 6.1% (weighted-average of 6.0%).



If any of these assumptions were to change, our net periodic pension cost would also change. We incurred net periodic pension cost relating to our defined benefit pension plans of $1.5 million in fiscal year 2008,
$2.3 million in fiscal year 2007 and $2.3 million in fiscal year 2006, and expect our net periodic pension cost to be approximately $1.6 million in fiscal year 2009. A one percent decrease in the weighted-average estimated return on plan assets or
assumed discount rate would increase our net periodic pension cost for fiscal year 2009 by $1.0 million or $0.4 million, respectively. As of October 3, 2008, our projected benefit obligation relating to defined benefit pension plans was $47.7
million. A one percent decrease in the weighted-average estimated discount rate would increase this obligation by $9.8 million.



Item 8.    Financial Statements and Supplementary Data



The information required by this Item is submitted as a separate section to
this Report. See Item 15Exhibits, Financial Statement Schedules.



Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure



None.



Item 9A.    Controls and Procedures



Disclosure controls and procedures.    Based on the evaluation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our Chief Executive Officer and the Chief
Financial Officer have concluded that as of the end of the period covered by this Annual Report on Form 10-K (October 3, 2008), our disclosure controls and procedures were effective.



Inherent Limitations on the Effectiveness of Controls.    Our management, including the Chief
Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can only
provide reasonable, not absolute, assurance that the control systems objectives will be met. Further, the design of a control system must reflect the fact that the benefits of controls must be considered relative to their costs. Due to the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,



37



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##### Table of Contents

have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of
simple error or mistake. Controls can also be circumvented by the individual acts of some persons or by collusion of two or more people. The design of any system of controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of
compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



Managements annual report on internal control over financial reporting.    Our management
is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Our management (including the Chief Executive Officer and the Chief Financial
Officer) evaluated the effectiveness of our internal control over financial reporting as of October 3, 2008 based on the framework defined in Internal Control  Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation under this framework, our management concluded that our internal control over financial reporting was effective as of October 3, 2008.



Attestation report of independent registered public accounting
firm.    PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form 10-K, has also audited the effectiveness of our
internal control over financial reporting as of October 3, 2008, as stated in their attestation report included on page F-2 of this Annual Report on Form 10-K.



Changes in internal control over financial reporting.There was no change in our internal
control over financial reporting that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



Item 9B.    Other Information



None.



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##### Table of Contents

PART III



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------



The information required by this Item with respect to our executive officers is incorporated herein by reference from the corresponding information
contained in Item 1 of Part I of this Report under the heading Executive Officers.



The information required by this Item with respect to our directors and nominees for director is incorporated herein by reference from the corresponding information provided under the heading Proposal
OneElection of Directors in our Proxy Statement.



The
information required by this Item with respect to our audit committee financial expert is incorporated herein by reference from the corresponding information provided under the heading Meetings and Committees of the BoardAudit Committee
in our Proxy Statement.



The information required by
Item 405 of Regulation S-K is incorporated herein by reference from the corresponding information provided under the heading Section 16(a) Beneficial Ownership Reporting Compliance in our Proxy Statement.



Our Corporate Governance Guidelines and the charters of the Audit Committee,
Compensation Committee, Nominating and Governance Committee and Stock Committee of our Board of Directors are available at our main Internet website, at http://www.varianinc.com, and can be accessed by clicking on Investors and then on
Corporate Governance. Upon request, we will provide to any person, at no charge, a copy of any of these materials. Such a request must be made in writing to our Secretary, at Varian, Inc., 3120 Hansen Way, Palo Alto, CA 94304-1030.



We have adopted a code of ethics that applies to our Chief
Executive Officer, Chief Financial Officer and Controller. This code of ethics, which is included in our Code of Business Conduct and Ethics that applies to all officers, directors and employees, is posted on our website. The Code of Business
Conduct and Ethics may be found as follows:



| | 1. |  | From our main website, click on Investors.
| | -- |  | --------------------------------------------



| | 2. |  | Next, click on Corporate Governance.
| | -- |  | --------------------------------------



| | 3. |  | Finally, click on Code of Business Conduct and Ethics.
| | -- |  | --------------------------------------------------------



We intend to satisfy the disclosure requirement under Item 10 of Form 8-K, regarding any amendment to, or waiver from, a provision of this Code of
Business Conduct and Ethics with respect to directors and executive officers, by posting such information on our website, at the address and location specified above.



|Item 11. | Executive Compensation
|-------- | ----------------------



The information required by this Item is incorporated herein by reference from the corresponding information provided under the headings Executive
Compensation Information and Compensation Committee Report in our Proxy Statement.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------



The information required by this Item is incorporated herein by reference from the corresponding information provided under
the headings Equity Compensation Plan Informationand Stock Ownership of Certain Beneficial Owners in our Proxy Statement.



|Item 13. | Certain Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------



The information required by this Item is incorporated herein by reference from the corresponding information provided under
the headings Board Structure and Nominees and Related Party Transactions in our Proxy Statement.



|Item 14. | Principal Accounting Fees and Services
|-------- | --------------------------------------



The information required by this Item with respect to our principal accounting firm is incorporated herein by reference from the corresponding information
provided under the heading Proposal TwoRatification of Appointment of Independent Registered Public Accounting Firmin our Proxy Statement.



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##### Table of Contents

PART IV



|Item 15. | Exhibits, Financial Statement Schedules
|-------- | ---------------------------------------



| | (a) |  | (1)  Consolidated Financial Statements: (see Index on page F-1 of this Report)
| | --- |  | ------------------------------------------------------------------------------



| |  |  | Report of Independent Registered Public Accounting Firm
| | - |  | -------------------------------------------------------



| |  |  | Consolidated Statement of Earnings for fiscal years 2008, 2007 and 2006
| | - |  | -----------------------------------------------------------------------



| |  |  | Consolidated Balance Sheet at fiscal year end 2008 and 2007
| | - |  | -----------------------------------------------------------



| |  |  | Consolidated Statement of Stockholders Equity and Comprehensive Income for fiscal years 2008, 2007 and 2006
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Statement of Cash Flows for fiscal years 2008, 2007 and 2006
| | - |  | -------------------------------------------------------------------------



| |  |  | Notes to the Consolidated Financial Statements
| | - |  | ----------------------------------------------



| | (2) |  | Consolidated Financial Statement Schedule: (see Index on page F-1 of this Report)
| | --- |  | ---------------------------------------------------------------------------------



The following Financial Statement Schedule for fiscal years 2008, 2007 and 2006 is filed as a part of this Report and
should be read in conjunction with our Consolidated Financial Statements.



|         |  |                                   
|-------- |  | ----------------------------------
|Schedule |  |                                   
|II       |  | Valuation and Qualifying Accounts.



All other required
schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the Consolidated Financial Statements or the Notes thereto.



| | (3) |  | Exhibits
| | --- |  | --------



|           |  |                                                                                                                                                                            |  |                           |  |                   |  |                  |  |              
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ----------------- |  | ---------------- |  | -------------
|           |  |                                                                                                                                                                            |  | Incorporated by Reference |  |                  
|ExhibitNo. |  | Exhibit Description                                                                                                                                                        |  | Form                      |  | Date Filed        |  | ExhibitNumber(s) |  | FiledHerewith
|2.1        |  | Amended and Restated Distribution Agreement, dated as of January 14, 1999, among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc. |  | 10-Q                      |  | May 17, 1999      |  | 2.1              |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|3.1        |  | Restated Certificate of Incorporation of Varian, Inc.                                                                                                                      |  | 10-Q                      |  | May 17, 1999      |  | 3.1, 3.2         |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|3.2        |  | By-Laws of Varian, Inc.                                                                                                                                                    |  | 10-Q                      |  | May 17, 1999      |  | 3.3              |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|4.1        |  | Specimen Common Stock Certificate.                                                                                                                                         |  | 10/A                      |  | March 8, 1999     |  | 4.1              |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|4.2        |  | Rights Agreement, dated as of February 18, 1999, between Varian, Inc. and First Chicago Trust Company of New York.                                                         |  | 10/A                      |  | March 8, 1999     |  | 4.2              |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|4.3        |  | First Amendment to Rights Agreement, dated as of November 2, 2001, between Varian, Inc. and First Chicago Trust Company of New York.                                       |  | 8-A/A                     |  | November 21, 2001 |  | 2                |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|4.4        |  | Second Amendment to Rights Agreement, dated as of May 12, 2004, between Varian, Inc. and EquiServe Trust Company, N.A.                                                     |  | 10-Q                      |  | May 17, 2004      |  | 4.4              |  |              



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|           |  |                                                                                                                                                             |  |                           |  |                   |  |                  |  |              
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ----------------- |  | ---------------- |  | -------------
|           |  |                                                                                                                                                             |  | Incorporated by Reference |  |                  
|ExhibitNo. |  | Exhibit Description                                                                                                                                         |  | Form                      |  | Date Filed        |  | ExhibitNumber(s) |  | FiledHerewith
|10.1       |  | Intellectual Property Agreement, dated as of April 2, 1999, among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc. |  | 10-Q                      |  | May 17, 1999      |  | 10.2             |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.2       |  | Varian, Inc. Amended and Restated Note Purchase and Private Shelf Agreement and Assumption dated as of April 2, 1999.                                       |  | 10-Q                      |  | May 17, 1999      |  | 10.6             |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.3       |  | Asset Purchase Agreement, dated as of February 4, 2005, between Varian, Inc. and Jabil Circuit, Inc.                                                        |  | 8-K                       |  | March 17, 2005    |  | 2.1              |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.4       |  | Form of Indemnity Agreement between Varian, Inc. and its Directors and Officers.                                                                            |  | 10-K                      |  | December 9, 2004  |  | 10.5             |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.5*      |  | Varian, Inc. Omnibus Stock Plan, as amended and restated as of November 8, 2007.                                                                            |  | 8-K                       |  | February 1, 2008  |  | 10.1             |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.6*      |  | Varian, Inc. Management Incentive Plan, as amended and restated as of November 8, 2007.                                                                     |  | 8-K                       |  | November 13, 2007 |  | 10.9             |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.7*      |  | Varian, Inc. Supplemental Retirement Plan, as amended and restated effective November 13, 2008.                                                             |  |                           |  |                   |  |                  |  | X            
|           |  |                                                                                                                                                             |  |                           | 
|10.8*      |  | Varian, Inc. Employee Stock Purchase Plan.                                                                                                                  |  | 10-Q                      |  | May 10, 2000      |  | 10.1             |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.9*      |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Executive Officers (used beginning April 2, 1999 and prior to November 10, 2003).      |  | 10-K                      |  | December 7, 2006  |  | 10.9             |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.10*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Executive Officers (used beginning November 10, 2003 and prior to November 11, 2004).  |  | 10-K                      |  | December 7, 2006  |  | 10.10            |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.11*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Executive Officers (used beginning November 11, 2004 and prior to December 4, 2006).   |  | 10-K                      |  | December 7, 2006  |  | 10.11            |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.12*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Executive Officers (used beginning December 4, 2006 and prior to November 8, 2007).    |  | 10-K                      |  | December 7, 2006  |  | 10.12            |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.13*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Executive Officers (used beginning November 8, 2007).                                  |  | 8-K                       |  | November 13, 2007 |  | 10.3             |  |              
|           |  |                                                                                                                                                             |  |                           | 
|10.14*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Non-Employee Directors.                                                                |  | 10-K                      |  | December 9, 2004  |  | 10.12            |  |              



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|           |  |                                                                                                                                                                 |  |                           |  |                    |  |                  |  |              
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ------------------ |  | ---------------- |  | -------------
|           |  |                                                                                                                                                                 |  | Incorporated by Reference |  |                   
|ExhibitNo. |  | Exhibit Description                                                                                                                                             |  | Form                      |  | Date Filed         |  | ExhibitNumber(s) |  | FiledHerewith
|10.15*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Non-Employee DirectorsFor New Director/Chairman Grants (used beginning February 1, 2008). |  | 10-Q                      |  | May 6, 2008        |  | 10.29            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.16*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Non-Employee DirectorsFor Annual Director Grants (used beginning February 1, 2008).       |  | 10-Q                      |  | May 6, 2008        |  | 10.30            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.17*     |  | Form of Restricted Stock Agreement between Varian, Inc. and Executive Officers (used prior to December 4, 2006).                                                |  | 10-K                      |  | December 7, 2006   |  | 10.14            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.18*     |  | Form of Restricted Stock Agreement between Varian, Inc. and Executive Officers (used beginning December 4, 2006 and prior to November 8, 2007).                 |  | 10-K                      |  | December 7, 2006   |  | 10.15            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.19*     |  | Form of Restricted Stock Agreement between Varian, Inc. and Executive Officers (used beginning November 8, 2007).                                               |  | 10-Q                      |  | February 5, 2008   |  | 10.17            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.20*     |  | Form of Performance Share Agreement between Varian, Inc. and Executive Officers (used beginning November 8, 2007).                                              |  | 8-K                       |  | November 13, 2007  |  | 10.1             |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.21*     |  | Form of Performance Share Agreement between Varian, Inc. and Executive Officers (used beginning October 6, 2008)                                                |  | 8-K                       |  | September 15, 2008 |  | 10.2             |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.22*     |  | Form of Stock Unit Agreement between Varian, Inc. and Non-Employee Directors.                                                                                   |  | 10-Q                      |  | February 8, 2005   |  | 10.23            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.23*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and Garry W. Rogerson.                                        |  | 8-K                       |  | November 13, 2007  |  | 10.4             |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.24*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and G. Edward McClammy.                                       |  | 8-K                       |  | November 13, 2007  |  | 10.5             |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.25*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and Martin ODonoghue.                                        |  | 8-K                       |  | November 13, 2007  |  | 10.6             |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.26*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and Sergio Piras.                                             |  | 8-K                       |  | November 13, 2007  |  | 10.7             |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.27*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and Arthur W. Homan.                                          |  | 8-K                       |  | November 13, 2007  |  | 10.8             |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.28*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and Sean M. Wirtjes.                                          |  | 10-K                      |  | November 21, 2007  |  | 10.25            |  |              



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|           |  |                                                                                                          |  |                           |  |                    |  |                  |  |              
|---------- |  | -------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ------------------ |  | ---------------- |  | -------------
|           |  |                                                                                                          |  | Incorporated by Reference |  |                   
|ExhibitNo. |  | Exhibit Description                                                                                      |  | Form                      |  | Date Filed         |  | ExhibitNumber(s) |  | FiledHerewith
|10.29*     |  | Change in Control Agreement, dated as of September 15, 2008, between Varian, Inc. and Robert W. Dean II. |  | 8-K                       |  | September 15, 2008 |  | 10.1             |  |              
|           |  |                                                                                                          |  |                           | 
|10.30*     |  | Change in Control Agreement, dated as of October 6, 2008, between Varian, Inc. and Gordon B. Tredger.    |  |                           |  |                    |  |                  |  | X            
|           |  |                                                                                                          |  |                           | 
|10.31*     |  | Description of Compensatory Arrangements between Varian, Inc. and Non-Employee Directors.                |  | 8-K                       |  | February 1, 2008   |  | 10.26            |  |              
|           |  |                                                                                                          |  |                           | 
|10.32*     |  | Description of Certain Compensatory Arrangements between Varian, Inc. and Executive Officers.            |  | 10-K                      |  | November 21, 2007  |  | 10.27            |  |              
|           |  |                                                                                                          |  |                           | 
|10.33*     |  | Description of Certain Compensatory Arrangements between Varian S.p.A. and Sergio Piras.                 |  | 10-Q                      |  | February 5, 2008   |  | 10.28            |  |              
|           |  |                                                                                                          |  |                           | 
|18.1       |  | Preferability letter regarding inventory accounting principle change.                                    |  | 10-K                      |  | December 7, 2000   |  | 18.1             |  |              
|           |  |                                                                                                          |  |                           | 
|21         |  | Subsidiaries of the Registrant.                                                                          |  |                           |  |                    |  |                  |  | X            
|           |  |                                                                                                          |  |                           | 
|23         |  | Consent of Independent Registered Public Accounting Firm.                                                |  |                           |  |                    |  |                  |  | X            
|           |  |                                                                                                          |  |                           | 
|31.1       |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.      |  |                           |  |                    |  |                  |  | X            
|           |  |                                                                                                          |  |                           | 
|31.2       |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.      |  |                           |  |                    |  |                  |  | X            
|           |  |                                                                                                          |  |                           | 
|32.1       |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.      |  |                           |  |                    |  |                  |  |              
|           |  |                                                                                                          |  |                           | 
|32.2       |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.      |  |                           |  |                    |  |                  |  |              



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



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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.



|                         |  |                           |  |                                                                                            
|------------------------ |  | ------------------------- |  | -------------------------------------------------------------------------------------------
|                         |  | VARIAN, INC. (Registrant)
|                         |  |                          
|Dated: November 26, 2008 |  | By:                       |  | /s/ G. EDWARD MCCLAMMY G. Edward McClammy Senior Vice
President and Chief Financial Officer



Pursuant to the
requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                                                  |  |                                                                                 |  |                  
|------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | -----------------
|Signature                                         |  | Title                                                                           |  | Date             
|                                                  |  |                                                                                
|/s/ GARRY W. ROGERSON Garry W. Rogerson           |  | President and Chief Executive Officer (Principal Executive Officer), Director   |  | November 26, 2008
|                                                  |  |                                                                                
|/s/ G. EDWARD MCCLAMMY G. Edward McClammy         |  | Senior Vice President and Chief Financial Officer (Principal Financial Officer) |  | November 26, 2008
|                                                  |  |                                                                                
|/s/ ROBERT W. DEAN II Robert W. Dean II           |  | Controller (Principal Accounting
Officer)                                       |  | November 26, 2008
|                                                  |  |                                                                                
|/s/ ALLEN J. LAUER Allen J. Lauer                 |  | Chairman of the Board                                                           |  | November 26, 2008
|                                                  |  |                                                                                
|/s/ RICHARD U. DE SCHUTTER Richard U. De Schutter |  | Director                                                                        |  | November 26, 2008
|                                                  |  |                                                                                
|/s/ JAMES T. GLOVER James T. Glover               |  | Director                                                                        |  | November 26, 2008
|                                                  |  |                                                                                
|/s/ JOHN G. MCDONALD John G. McDonald             |  | Director                                                                        |  | November 26, 2008
|                                                  |  |                                                                                
|/s/ WAYNE R. MOON Wayne R. Moon                   |  | Director                                                                        |  | November 26, 2008
|                                                  |  |                                                                                
|/s/ ELIZABETH E. TALLETT Elizabeth E. Tallett     |  | Director                                                                        |  | November 26, 2008



44



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VARIAN, INC. AND SUBSIDIARY COMPANIES



ANNUAL REPORT ON FORM 10-K



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE



The following Consolidated Financial Statements of the Registrant and its
subsidiaries are required to be included in Item 8:



|                                                                                                             |  |     
|------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                             |  | Page
|Report of Independent Registered Public Accounting Firm                                                      |  | F-2 
|                                                                                                             | 
|Consolidated Statement of Earnings for fiscal years 2008, 2007 and 2006                                      |  | F-3 
|                                                                                                             | 
|Consolidated Balance Sheet at fiscal year end 2008 and 2007                                                  |  | F-4 
|                                                                                                             | 
|Consolidated Statement of Stockholders Equity and Comprehensive Income for fiscal years 2008, 2007 and 2006 |  | F-5 
|                                                                                                             | 
|Consolidated Statement of Cash Flows for fiscal years 2008, 2007 and 2006                                    |  | F-6 
|                                                                                                             | 
|Notes to the Consolidated Financial Statements                                                               |  | F-7 



The following
Consolidated Financial Statement Schedule of the Registrant and its subsidiaries for fiscal years 2008, 2007 and 2006 is filed as a part of this Report as required to be included in Item 15(a) and should be read in conjunction with the
Consolidated Financial Statements of the Registrant and its subsidiaries:



|         |  |                                   |  |     
|-------- |  | --------------------------------- |  | ----
|Schedule |  |                                   |  | Page
|II       |  | Valuation and Qualifying Accounts |  | F-35



All other required
schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the Consolidated Financial Statements or the Notes thereto.



F-1



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VARIAN, INC. AND SUBSIDIARY COMPANIES



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of Varian, Inc.:



In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1), present fairly, in all material respects, the financial position of Varian, Inc. and its subsidiaries at October 3, 2008 and September 28, 2007, and the results of their operations and their cash flows
for each of the three years in the period ended October 3, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of October 3, 2008, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Companys internal control over financial reporting
based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.



As discussed in Note 11 to the consolidated financial statements, effective
September 28, 2007, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements
No. 87, 88, 106, and 132(R), and changed its method of accounting for defined benefit plans.



As discussed in Note 14 to the consolidated financial statements, effective September 29, 2007, the Company adopted Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, and changed its method of accounting for uncertainty in income taxes.



A companys internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



|                              
|------------------------------
|/s/ PRICEWATERHOUSECOOPERS LLP
|PricewaterhouseCoopers LLP    



San
Jose, California

November 25, 2008



F-2



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED STATEMENT OF EARNINGS

(In thousands, except per share amounts)



|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|-------------------------------------------------------- |  | ----------------- | --------- | - | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|                                                         |  | Fiscal Year Ended |          
|                                                         |  | October 3,2008    |           |   | September 28,2007 |   |         | September 29,2006 | 
|Sales                                                    |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Products                                                 |  | $                 | 869,556   |   |                   | $ | 796,983 |                   |  | $ | 720,689 |  
|Services                                                 |  |                   | 142,959   |   |                   |   | 123,615 |                   |  |   | 114,016 |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Total sales                                              |  |                   | 1,012,515 |   |                   |   | 920,598 |                   |  |   | 834,705 |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Cost of sales                                            |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Products                                                 |  |                   | 476,555   |   |                   |   | 435,397 |                   |  |   | 398,465 |  
|Services                                                 |  |                   | 83,506    |   |                   |   | 69,724  |                   |  |   | 61,891  |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Total cost of sales                                      |  |                   | 560,061   |   |                   |   | 505,121 |                   |  |   | 460,356 |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Gross profit                                             |  |                   | 452,454   |   |                   |   | 415,477 |                   |  |   | 374,349 |  
|                                                         |  |                   |          
|Operating expenses                                       |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Selling, general and administrative                      |  |                   | 277,478   |   |                   |   | 257,754 |                   |  |   | 241,049 |  
|Research and development                                 |  |                   | 71,810    |   |                   |   | 65,169  |                   |  |   | 59,730  |  
|Purchased in-process research and development            |  |                   | 1,703     |   |                   |   |        |                   |  |   | 756     |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Total operating expenses                                 |  |                   | 350,991   |   |                   |   | 322,923 |                   |  |   | 301,535 |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Operating earnings                                       |  |                   | 101,463   |   |                   |   | 92,554  |                   |  |   | 72,814  |  
|Impairment of private company equity investment (Note 2) |  |                   | (3,018    | ) |                   |   |        |                   |  |   |        |  
|Interest income                                          |  |                   | 5,930     |   |                   |   | 6,152   |                   |  |   | 4,022   |  
|Interest expense                                         |  |                   | (1,656    | ) |                   |   | (1,878  | )                 |  |   | (2,172  | )
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Earnings before income taxes                             |  |                   | 102,719   |   |                   |   | 96,828  |                   |  |   | 74,664  |  
|Income tax expense                                       |  |                   | 36,274    |   |                   |   | 33,212  |                   |  |   | 24,595  |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Net earnings                                             |  | $                 | 66,445    |   |                   | $ | 63,616  |                   |  | $ | 50,069  |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Net earnings per share:                                  |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Basic                                                    |  | $                 | 2.24      |   |                   | $ | 2.09    |                   |  | $ | 1.62    |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Diluted                                                  |  | $                 | 2.21      |   |                   | $ | 2.05    |                   |  | $ | 1.59    |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Shares used in per share calculation:                    |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Basic                                                    |  |                   | 29,620    |   |                   |   | 30,457  |                   |  |   | 30,929  |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  
|Diluted                                                  |  |                   | 30,072    |   |                   |   | 31,004  |                   |  |   | 31,424  |  
|                                                         |  |                   |           |   |                   |   |         |                   |  |   |         |  



See accompanying Notes
to the Consolidated Financial Statements.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED BALANCE SHEET

(In thousands, except par value amounts)



|                                                                                                                                                        |  |                |         |                   |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ----------------- | - | -------
|                                                                                                                                                        |  | October 3,2008 |         | September 28,2007
|ASSETS                                                                                                                                                  |  |                |         |                   |   |        
|                                                                                                                                                        |  |               
|Current assets                                                                                                                                          |  |                |         |                   |   |        
|Cash and cash equivalents                                                                                                                               |  | $              | 103,895 |                   | $ | 196,396
|Accounts receivable, net                                                                                                                                |  |                | 199,420 |                   |   | 187,429
|Inventories                                                                                                                                             |  |                | 161,039 |                   |   | 140,533
|Deferred taxes                                                                                                                                          |  |                | 33,618  |                   |   | 38,068 
|Prepaid expenses and other current assets                                                                                                               |  |                | 15,663  |                   |   | 17,332 
|                                                                                                                                                        |  |                |         |                   |   |        
|Total current assets                                                                                                                                    |  |                | 513,635 |                   |   | 579,758
|Property, plant and equipment, net                                                                                                                      |  |                | 110,343 |                   |   | 110,792
|Goodwill                                                                                                                                                |  |                | 218,208 |                   |   | 193,760
|Intangible assets, net                                                                                                                                  |  |                | 36,972  |                   |   | 31,572 
|Other assets                                                                                                                                            |  |                | 24,089  |                   |   | 20,951 
|                                                                                                                                                        |  |                |         |                   |   |        
|Total assets                                                                                                                                            |  | $              | 903,247 |                   | $ | 936,833
|                                                                                                                                                        |  |                |         |                   |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                    |  |                |         |                   |   |        
|                                                                                                                                                        |  |               
|Current liabilities                                                                                                                                     |  |                |         |                   |   |        
|Current portion of long-term debt                                                                                                                       |  | $              |        |                   | $ | 6,250  
|Accounts payable                                                                                                                                        |  |                | 70,923  |                   |   | 72,588 
|Deferred profit                                                                                                                                         |  |                | 10,957  |                   |   | 13,641 
|Accrued liabilities                                                                                                                                     |  |                | 167,173 |                   |   | 159,109
|                                                                                                                                                        |  |                |         |                   |   |        
|Total current liabilities                                                                                                                               |  |                | 249,053 |                   |   | 251,588
|Long-term debt                                                                                                                                          |  |                | 18,750  |                   |   | 18,750 
|Deferred taxes                                                                                                                                          |  |                | 4,341   |                   |   | 4,050  
|Other liabilities                                                                                                                                       |  |                | 43,431  |                   |   | 44,358 
|                                                                                                                                                        |  |                |         |                   |   |        
|Total liabilities                                                                                                                                       |  |                | 315,575 |                   |   | 318,746
|                                                                                                                                                        |  |                |         |                   |   |        
|Commitments and contingencies (Notes 4, 5, 7, 8, 9, 10, 11, 12 and 14)                                                                                  |  |                |         |                   |   |        
|                                                                                                                                                        |  |               
|Stockholders equity                                                                                                                                    |  |                |         |                   |   |        
|Preferred stockpar value $0.01, authorized1,000 shares;issuednone                                                                                    |  |                |        |                   |   |       
|Common stockpar value $0.01, authorized99,000 shares; issued and outstanding28,917 shares at October 3, 2008 and 30,345
shares at September 28, 2007 |  |                | 356,192 |                   |   | 351,330
|Retained earnings                                                                                                                                       |  |                | 186,009 |                   |   | 199,471
|Accumulated other comprehensive income                                                                                                                  |  |                | 45,471  |                   |   | 67,286 
|                                                                                                                                                        |  |                |         |                   |   |        
|Total stockholders equity                                                                                                                              |  |                | 587,672 |                   |   | 618,087
|                                                                                                                                                        |  |                |         |                   |   |        
|Total liabilities and stockholders equity                                                                                                              |  | $              | 903,247 |                   | $ | 936,833
|                                                                                                                                                        |  |                |         |                   |   |        



See accompanying Notes
to the Consolidated Financial Statements.



F-4



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

AND COMPREHENSIVE INCOME

(In
thousands)



|                                                                                                         |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ------------ | - |  | ---------------- | ------- | - | -------------------- | - | ------- | ----------------------------------- |  | - | -------- | - |  | ------------------------ | ------- | - |  | - | -------- | - |  | - | ------- | -
|                                                                                                         |  | Common Stock |   |  | RetainedEarnings |         |   | TreasuryStock atCost |   |         | AccumulatedOtherComprehensiveIncome |  |   | Total    |   |  | TotalComprehensiveIncome |        
|                                                                                                         |  | Shares       |   |  | Amount           |         |   |                      |   |         |                                    
|Balance, September 30, 2005                                                                              |  | 31,016       |   |  | $                | 282,923 |   |                      | $ | 202,318 |                                     |  | $ |         |   |  | $                        | 14,281  |   |  | $ | 499,522  |   |  |   |         |  
|Net earnings                                                                                             |  |             |   |  |                  |        |   |                      |   | 50,069  |                                     |  |   |         |   |  |                          |        |   |  |   | 50,069   |   |  | $ | 50,069  |  
|Other comprehensive income:                                                                              |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Currency translation adjustment                                                                          |  |             |   |  |                  |        |   |                      |   |        |                                     |  |   |         |   |  |                          | 14,381  |   |  |   | 14,381   |   |  |   | 14,381  |  
|Minimum pension liability, net of tax of ($121)                                                          |  |             |   |  |                  |        |   |                      |   |        |                                     |  |   |         |   |  |                          | 106     |   |  |   | 106      |   |  |   | 106     |  
|                                                                                                         |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Total comprehensive income                                                                               |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  | $ | 64,556  |  
|                                                                                                         |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Issuance of common stock and stock units                                                                 |  | 1,369        |   |  |                  | 34,060  |   |                      |   |        |                                     |  |   |         |   |  |                          |        |   |  |   | 34,060   |   |  |   |         |  
|Share-based compensation expense                                                                         |  |             |   |  |                  | 8,712   |   |                      |   |        |                                     |  |   |         |   |  |                          |        |   |  |   | 8,712    |   |  |   |         |  
|Tax benefit from share-based plans                                                                       |  |             |   |  |                  | 8,245   |   |                      |   |        |                                     |  |   |         |   |  |                          |        |   |  |   | 8,245    |   |  |   |         |  
|Repurchase of common stock                                                                               |  | (1,515       | ) |  |                  |        |   |                      |   |        |                                     |  |   | (63,055  | ) |  |                          |        |   |  |   | (63,055  | ) |  |   |         |  
|Retirement of treasury stock                                                                             |  |             |   |  |                  | (14,850 | ) |                      |   | (48,205 | )                                   |  |   | 63,055   |   |  |                          |        |   |  |   |         |   |  |   |         |  
|                                                                                                         |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Balance, September 29, 2006                                                                              |  | 30,870       |   |  |                  | 319,090 |   |                      |   | 204,182 |                                     |  |   |         |   |  |                          | 28,768  |   |  |   | 552,040  |   |  |   |         |  
|Net earnings                                                                                             |  |             |   |  |                  |        |   |                      |   | 63,616  |                                     |  |   |         |   |  |                          |        |   |  |   | 63,616   |   |  | $ | 63,616  |  
|Other comprehensive income:                                                                              |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Currency translation adjustment                                                                          |  |             |   |  |                  |        |   |                      |   |        |                                     |  |   |         |   |  |                          | 38,264  |   |  |   | 38,264   |   |  |   | 38,264  |  
|Minimum pension liability, net of tax of ($1,198)                                                        |  |             |   |  |                  |        |   |                      |   |        |                                     |  |   |         |   |  |                          | 2,504   |   |  |   | 2,504    |   |  |   | 2,504   |  
|                                                                                                         |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Total comprehensive income                                                                               |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  | $ | 104,384 |  
|                                                                                                         |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Adjustment for initial adoption of SFAS 158, net of tax of $649                                          |  |             |   |  |                  |        |   |                      |   |        |                                     |  |   |         |   |  |                          | (2,250  | ) |  |   | (2,250   | ) |  |   |         |  
|Issuance of common stock and stock units                                                                 |  | 1,156        |   |  |                  | 31,897  |   |                      |   |        |                                     |  |   |         |   |  |                          |        |   |  |   | 31,897   |   |  |   |         |  
|Share-based compensation expense                                                                         |  |             |   |  |                  | 9,946   |   |                      |   |        |                                     |  |   |         |   |  |                          |        |   |  |   | 9,946    |   |  |   |         |  
|Tax benefit from share-based plans                                                                       |  |             |   |  |                  | 8,769   |   |                      |   |        |                                     |  |   |         |   |  |                          |        |   |  |   | 8,769    |   |  |   |         |  
|Repurchase of common stock                                                                               |  | (1,681       | ) |  |                  |        |   |                      |   |        |                                     |  |   | (86,699  | ) |  |                          |        |   |  |   | (86,699  | ) |  |   |         |  
|Retirement of treasury stock                                                                             |  |             |   |  |                  | (18,372 | ) |                      |   | (68,327 | )                                   |  |   | 86,699   |   |  |                          |        |   |  |   |         |   |  |   |         |  
|                                                                                                         |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Balance, September 28, 2007                                                                              |  | 30,345       |   |  |                  | 351,330 |   |                      |   | 199,471 |                                     |  |   |         |   |  |                          | 67,286  |   |  |   | 618,087  |   |  |   |         |  
|Net earnings                                                                                             |  |             |   |  |                  |        |   |                      |   | 66,445  |                                     |  |   |         |   |  |                          |        |   |  |   | 66,445   |   |  | $ | 66,445  |  
|Other comprehensive income:                                                                              |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Currency translation adjustment                                                                          |  |             |   |  |                  |        |   |                      |   |        |                                     |  |   |         |   |  |                          | (22,263 | ) |  |   | (22,263  | ) |  |   | (22,263 | )
|Minimum liability for defined benefit pension and other postretirement obligations, net of tax of ($653) |  |             |   |  |                  |        |   |                      |   |        |                                     |  |   |         |   |  |                          | 448     |   |  |   | 448      |   |  |   | 448     |  
|                                                                                                         |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Total comprehensive income                                                                               |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  | $ | 44,630  |  
|                                                                                                         |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Issuance of common stock and stock units                                                                 |  | 536          |   |  |                  | 18,228  |   |                      |   |        |                                     |  |   |         |   |  |                          |        |   |  |   | 18,228   |   |  |   |         |  
|Share-based compensation expense                                                                         |  |             |   |  |                  | 9,673   |   |                      |   |        |                                     |  |   |         |   |  |                          |        |   |  |   | 9,673    |   |  |   |         |  
|Tax benefit from share-based plans                                                                       |  |             |   |  |                  | 894     |   |                      |   |        |                                     |  |   |         |   |  |                          |        |   |  |   | 894      |   |  |   |         |  
|Repurchase of common stock                                                                               |  | (1,964       | ) |  |                  |        |   |                      |   |        |                                     |  |   | (106,859 | ) |  |                          |        |   |  |   | (106,859 | ) |  |   |         |  
|Retirement of treasury stock                                                                             |  |             |   |  |                  | (23,933 | ) |                      |   | (82,926 | )                                   |  |   | 106,859  |   |  |                          |        |   |  |   |         |   |  |   |         |  
|Adjustment for initial adoption ofFIN 48                                                                 |  |             |   |  |                  |        |   |                      |   | 3,019   |                                     |  |   |         |   |  |                          |        |   |  |   | 3,019    |   |  |   |         |  
|                                                                                                         |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  
|Balance, October 3, 2008                                                                                 |  | 28,917       |   |  | $                | 356,192 |   |                      | $ | 186,009 |                                     |  | $ |         |   |  | $                        | 45,471  |   |  | $ | 587,672  |   |  |   |         |  
|                                                                                                         |  |              |   |  |                  |         |   |                      |   |         |                                     |  |   |          |   |  |                          |         |   |  |   |          |   |  |   |         |  



See accompanying Notes
to the Consolidated Financial Statements.



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)



|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  
|----------------------------------------------------------------------------------- |  | ------------------ | -------- | - | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|                                                                                    |  | Fiscal Years Ended |         
|                                                                                    |  | October 3,2008     |          |   | September 28,2007 |   |         | September 29,2006 | 
|Cash flows from operating activities                                                |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Net earnings                                                                        |  | $                  | 66,445   |   |                   | $ | 63,616  |                   |  | $ | 50,069  |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Depreciation and amortization                                                       |  |                    | 29,346   |   |                   |   | 29,248  |                   |  |   | 27,470  |  
|(Gain) loss on disposition of property, plant and equipment                         |  |                    | (474     | ) |                   |   | (452    | )                 |  |   | 92      |  
|Impairment of private company equity investment                                     |  |                    | 3,018    |   |                   |   |        |                   |  |   |        |  
|Purchased in-process research and development                                       |  |                    | 1,703    |   |                   |   |        |                   |  |   | 756     |  
|Share-based compensation expense                                                    |  |                    | 9,673    |   |                   |   | 9,946   |                   |  |   | 8,712   |  
|Excess tax benefit from share-based plans                                           |  |                    | (894     | ) |                   |   | (9,090  | )                 |  |   | (7,700  | )
|Deferred taxes                                                                      |  |                    | (3,122   | ) |                   |   | (9,404  | )                 |  |   | (12,899 | )
|Changes in assets and liabilities, excluding effects of acquisitions:               |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Accounts receivable, net                                                            |  |                    | (12,205  | ) |                   |   | 1,074   |                   |  |   | (13,449 | )
|Inventories                                                                         |  |                    | (19,428  | ) |                   |   | 400     |                   |  |   | (7,256  | )
|Prepaid expenses and other current assets                                           |  |                    | 3,300    |   |                   |   | (387    | )                 |  |   | 5,234   |  
|Other assets                                                                        |  |                    | (1,462   | ) |                   |   | (4,110  | )                 |  |   | 415     |  
|Accounts payable                                                                    |  |                    | (1,072   | ) |                   |   | (4,733  | )                 |  |   | 10,004  |  
|Deferred profit                                                                     |  |                    | (3,526   | ) |                   |   | (176    | )                 |  |   | 1,504   |  
|Accrued liabilities                                                                 |  |                    | 14,053   |   |                   |   | 8,103   |                   |  |   | 14,367  |  
|Other liabilities                                                                   |  |                    | (6,334   | ) |                   |   | 15,822  |                   |  |   | 2,019   |  
|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Net cash provided by operating activities                                           |  |                    | 79,021   |   |                   |   | 99,857  |                   |  |   | 79,338  |  
|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Cash flows from investing activities                                                |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Proceeds from sale of property, plant and equipment                                 |  |                    | 1,735    |   |                   |   | 4,966   |                   |  |   | 797     |  
|Purchase of property, plant and equipment                                           |  |                    | (23,960  | ) |                   |   | (19,396 | )                 |  |   | (20,295 | )
|Purchase of businesses, net of cash acquired                                        |  |                    | (55,167  | ) |                   |   | (7,115  | )                 |  |   | (72,854 | )
|Private company equity investments                                                  |  |                    | (18      | ) |                   |   | (3,000  | )                 |  |   | (652    | )
|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Net cash used in investing activities                                               |  |                    | (77,410  | ) |                   |   | (24,545 | )                 |  |   | (93,004 | )
|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Cash flows from financing activities                                                |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Repayment of debt                                                                   |  |                    | (6,250   | ) |                   |   | (2,500  | )                 |  |   | (2,500  | )
|Repurchase of common stock                                                          |  |                    | (106,859 | ) |                   |   | (86,699 | )                 |  |   | (63,055 | )
|Issuance of common stock                                                            |  |                    | 18,228   |   |                   |   | 31,897  |                   |  |   | 34,060  |  
|Excess tax benefit from share-based plans                                           |  |                    | 894      |   |                   |   | 9,090   |                   |  |   | 7,700   |  
|Transfers to Varian Medical Systems, Inc.                                           |  |                    | (600     | ) |                   |   | (646    | )                 |  |   | (649    | )
|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Net cash used in financing activities                                               |  |                    | (94,587  | ) |                   |   | (48,858 | )                 |  |   | (24,444 | )
|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Effects of exchange rate changes on cash and cash equivalents                       |  |                    | 475      |   |                   |   | 15,787  |                   |  |   | 3,771   |  
|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Net (decrease) increase in cash and cash equivalents                                |  |                    | (92,501  | ) |                   |   | 42,241  |                   |  |   | (34,339 | )
|Cash and cash equivalents at beginning of period                                    |  |                    | 196,396  |   |                   |   | 154,155 |                   |  |   | 188,494 |  
|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Cash and cash equivalents at end of period                                          |  | $                  | 103,895  |   |                   | $ | 196,396 |                   |  | $ | 154,155 |  
|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Supplemental cash flow information                                                  |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Income taxes paid, net of refunds received                                          |  | $                  | 38,793   |   |                   | $ | 36,317  |                   |  | $ | 23,276  |  
|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  
|Interest paid                                                                       |  | $                  | 1,626    |   |                   | $ | 1,765   |                   |  | $ | 2,030   |  
|                                                                                    |  |                    |          |   |                   |   |         |                   |  |   |         |  



See accompanying Notes
to the Consolidated Financial Statements.



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    Description of Business and Basis of
Presentation



Varian, Inc., together with its subsidiaries
(collectively, the Company), designs, develops, manufactures, markets, sells and services scientific instruments (including analytical instruments, research products and related software, consumable products, accessories and services)
and vacuum products (and related accessories and services). These businesses primarily serve life science, environmental, energy, and applied research and other customers.



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



Note 2.    Summary of Significant Accounting Policies



Fiscal Year.    The Companys fiscal years reported are the 52- or 53-week periods that ended on the Friday nearest
September 30. Fiscal year 2008 was comprised of the 53-week period ended on October 3, 2008. Fiscal year 2007 was comprised of the 52-week period ended on September 28, 2007. Fiscal year 2006 was comprised of the 52-week period ended
on September 29, 2006. Each quarter during fiscal years 2008, 2007 and 2006 was comprised of 13 weeks, respectively, except for the fourth quarter of fiscal year 2008, which was comprised of 14 weeks.



Principles of Consolidation.    The Consolidated
Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.



Use of Estimates.    The preparation of the Consolidated Financial Statements in conformity with
accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these Consolidated Financial Statements include revenue recognition, allowances for doubtful accounts receivable, inventory valuation
reserves, share-based compensation, product warranty reserves, environmental liabilities and income taxes. Actual results could differ from these estimates.



Revenue Recognition.    The Company accounts for its revenue recognition in accordance with the provisions of U.S. Securities
and Exchange Commission (the SEC) Staff Accounting Bulletin No. (SAB) 104, Revenue Recognition. The Companys revenues are derived from product sales (including accessory sales) and services. For product sales and
accessory sales, revenue is recognized when persuasive evidence of an arrangement exists, the contract price is fixed or determinable, the product or accessory has been delivered, title and risk of loss have passed to the customer and collection of
the resulting receivable is reasonably assured. Product sales that do not involve unique customer acceptance terms or new specifications or technology with customer acceptance provisions, but that do involve installation services, are accounted for
as multiple-element arrangements, where the larger of the contractual billing holdback or the fair value of the installation service is deferred when the product is delivered and subsequently recognized when the installation is complete. For certain
other product sales that do involve unique customer acceptance terms or new specifications or technology with customer acceptance provisions, all revenue is deferred until all contractually required customer acceptance provisions and product
specifications have been satisfied. In all cases, the fair value of undelivered elements, such as accessories or services purchased by customers in connection with a product sale, is deferred until the related items are delivered to the customer.
Revenue related to service contracts is recognized ratably over the term of the



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



contracts. Unearned maintenance and service contract revenue is included in accrued liabilities on the accompanying Consolidated Balance Sheet. Revenue
related to incident-based paid service and training services is recognized when the related services are provided to the customer.



Deferred profit on the accompanying Consolidated Balance Sheet is comprised of the profit (revenue less related cost of sales) on certain transactions
that has been deferred under the Companys revenue recognition policy. Deferred profit relates to transactions in the Companys Scientific Instruments segment that typically fit one of the following descriptions:



| |  |  | A product has been delivered to a customer but revenue cannot yet be recognized, typically due to non-standard specifications or acceptance requirements that have not yet been
demonstrated. In these cases, the revenue and related cost of sale that would ordinarily be recorded in the income statement at the time of delivery are instead recorded to deferred profit. This accounting is reversed and the revenue and related
cost of sales are recorded in the income statement once the non-standard specifications or acceptance requirements have been demonstrated and all other revenue recognition criteria have been met.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A product has been delivered and 100% of the contract value is billable per the terms of the arrangement but post-delivery obligations (e.g., installation) remain. In these cases,
revenue equal to the fair value of the post-delivery obligations is deferred and included in deferred profit when the product is delivered. Once the post-delivery obligations have been met, the deferred revenue is reversed out of deferred profit and
recorded as revenue in the income statement. Since installation costs are typically not significant relative to total product costs and the time to complete an installation is usually very short, the Company rarely needs to defer installation costs
associated with deferred installation revenue.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In certain other cases, products are delivered but post-delivery obligations (e.g., installation) remain and a portion of the contract value is not billable until such obligations have been met (the holdback). In these cases,
recognition of revenue equal to the greater of the holdback or the fair value of the undelivered service element is deferred. However, since holdbacks are not billable until the related undelivered element (typically installation) has been
delivered, no invoice is issued and no receivable is recorded for the holdback amount and the related revenue is not recorded. Accordingly, deferred revenue relating to holdbacks is not recorded and does not otherwise impact the accompanying
Consolidated Balance Sheet.



The Company sells products and
accessories predominantly through its direct sales force. As a result, the use of distributors is generally limited to geographic regions where the Companys direct sales force is less developed. The Company does not normally offer product
return or exchange rights (other than those relating to non-conforming or defective goods under warranty) or price protection allowances to its customers, including its distributors. Payment terms granted to distributors are similar to those granted
to other customers and payments are not dependent upon the distributors receipt of payment from their end-user customers.



The Companys products are generally subject to warranties and the Company provides for the estimated future costs of repair or replacement in cost
of sales at the time the related sale is recognized.



Foreign Currency Translation.    The Company uses the local currency as the functional currency in each country in which it operates subsidiaries. The functional currencies of the Companys operations are
primarily the U.S. dollar and the Euro, and, to a lesser extent, the British pound, Australian dollar, Japanese yen and various other currencies. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at exchange rates at
the end of the fiscal year and income and expense items are translated at exchange rates prevailing during the year. Translation gains and losses are included in the cumulative translation adjustment component of accumulated other comprehensive
income. Gains and losses arising from transactions and translation of period-end balances denominated in currencies other than a subsidiarys functional currency are reflected in selling, general and administrative expenses.



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Concentration of Credit Risk.    Financial instruments that potentially
subject the Company to concentrations of credit risk include cash equivalents, trade accounts receivable and foreign exchange forward contracts. The Company invests primarily in demand deposits, short-term U.S. Treasury securities and money market
funds. The Company sells its products and extends trade credit to a large number of customers, who are dispersed across many different industries and geographies. The Company performs ongoing credit evaluations of these customers and generally does
not require collateral from them, although the Company does utilize letters of credit to mitigate credit risk when considered appropriate. Trade accounts receivable include allowances for doubtful accounts as of October 3, 2008 and
September 28, 2007 of $1.3 million and $1.7 million, respectively. Delinquent account balances are written off when management determines that the likelihood of collection is no longer probable. No single customer represented 10% or more of the
Companys total sales in fiscal year 2008, 2007 and 2006 or trade accounts receivable at fiscal year end 2008 or 2007. The Company seeks to minimize credit risk relating to foreign exchange forward contracts by limiting its counter-parties to
major financial institutions.



Cash and Cash
Equivalents.    The Company includes currency on hand, demand deposits, money market funds and all highly liquid debt securities with an original maturity of three months or less in cash and cash equivalents. The cost basis
of cash and cash equivalents approximates fair value due to the short period of time to maturity.



Inventories.    Inventories are stated at the lower of cost or market, with cost being computed on an average-cost basis.
Provisions are made for potentially excess or slow-moving inventories. When a loss provision is made, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or an
increase in that newly established cost basis.



Property,
Plant and Equipment.    Property, plant and equipment are stated at cost. Major improvements are capitalized, while maintenance and repairs are expensed as incurred. Property (land) is not depreciated. Plant and equipment are
depreciated over their estimated useful lives using the straight-line method. Machinery and equipment lives vary from three to 10 years and buildings are depreciated over 20 to 40 years. Purchased software is depreciated over five to 10
years. Leasehold improvements are depreciated using the straight-line method over their estimated useful lives or the remaining term of the lease, whichever is less. Depreciation expense totaled $20.8 million, $21.1 million and $18.9 million in
fiscal years 2008, 2007 and 2006, respectively. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are removed from the accounts.



Goodwill and Intangible Assets.    Under Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards No. (SFAS) 142, Goodwill and Other Intangible Assets, goodwill is not amortized, but must be tested for impairment annually and whenever events or circumstances occur indicating that
goodwill might be impaired. The Company performed annual goodwill impairment tests during the second quarter of fiscal years 2008, 2007 and 2006 and determined that there was no impairment of goodwill.



Identifiable intangible assets recorded in connection with acquisitions are
amortized on a straight-line basis over their estimated useful lives, which range from two to 20 years. Acquired in-process research and development is immediately expensed.



Investments in Privately Held Companies.    The Company has equity investments in privately held
companies which, because of its ownership interest and other factors, are carried at cost. These investments are evaluated under the requirements of FASB Interpretation No. (FIN) 46(R), Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51,Accounting Principles Board Opinion No. (APB) 18, The Equity Method of Accounting for Investments in Common Stock, and other applicable guidance to determine the appropriate accounting
treatment, including whether the Company must consolidate the investee company. Based on these evaluations, the Company has determined that no consolidation is required. These investments are included in Other assets in the Consolidated Balance
Sheet. The Company monitors these investments for impairment and will make appropriate reductions in carrying values if the Company determines that an impairment charge is required based primarily on the near-term prospects and financial condition
of these companies.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



During fiscal year 2008, the Company became aware of information which raised substantial doubt about
the ability of a small, privately held company in which the Company holds a cost-method equity investment to continue as a going concern. Based on this information, the Company determined that the fair value of its investment had declined and that
the decline was other-than-temporary. As a result, the Company wrote off the entire $3.0 million carrying value of its investment via an impairment charge in the period.



Long-Lived Assets.    The Company evaluates the carrying value of long-lived assets in accordance with the
provisions of SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. All long-lived assets to be disposed of are
reported at the lower of carrying amount or fair market value, less expected selling costs.



Share-Based Compensation.    The Company accounts for share-based compensation in accordance with the provisions of SFAS 123(R), Share-Based Payment, which establishes the accounting
for share-based awards and the inclusion of their fair value in net earnings in the respective periods the awards were earned, and SEC Staff Accounting Bulletin No. (SAB) 107, Share-Based Payment. Consistent with the provisions of
SFAS 123(R) and SAB 107, the Company estimates the fair value of stock options and shares issued under its employee stock purchase plan using the Black-Scholes option-pricing model. Fair value is estimated on the date of grant and is then recognized
(net of estimated forfeitures) as expense in the Consolidated Statement of Earnings over the requisite service period (generally the vesting period).



The determination of fair value and the timing of expense using option pricing models such as the Black-Scholes model require the input of highly
subjective assumptions, including the expected forfeiture rate and life of the option and the expected price volatility of the underlying stock. The Company estimates the expected forfeiture and expected life assumptions based on historical
experience. In determining the Companys expected stock price volatility assumption, the Company reviews both the historical and implied volatility of the Companys common stock, with implied volatility based on the implied volatility of
publicly traded options on the Companys common stock. Unless the volume or maturity of these publicly traded options does not satisfy the conditions to use implied volatility under SAB 107, the Company determines the expected stock price
volatility assumption using a combination of historical and implied volatility.



In connection with its adoption of SFAS 123(R), the Company elected to use the practical transition option (also known as the short-cut method) to calculate its historical pool of windfall tax benefits as
allowed under FASB Staff Position No. (FSP) FAS 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. The practical transition option allows the use of a simplified method to
establish the beginning balance of the additional paid-in capital pool (the APIC pool), which is available to absorb shortfalls when actual tax deductions are less than the related book share-based compensation cost recognized subsequent
to the adoption of SFAS 123(R).



Research and
Development.    Research and development costs related to both present and future products are expensed as they are incurred.



Advertising Costs.    Advertising costs are included as part of selling, general and administrative expense and are expensed as
incurred. Advertising expense was $4.0 million in fiscal year 2008, $3.2 million in fiscal year 2007 and $2.9 million in fiscal year 2006.



Income Taxes.    The Company accounts for income taxes in accordance with SFAS 109, Accounting for Income Taxes, which
requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be
reduced by a valuation allowance if it is more likely than not that the related tax benefits will not be realized in the future.



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Effective September 29, 2007 (the first day of fiscal year 2008), the Company adopted FIN 48,
Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No 109, which addresses accounting for, and disclosure of, uncertain tax positions. FIN 48 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under FIN 48, the Company recognizes liabilities for unrecognized tax benefits resulting from uncertain tax positions by evaluating
whether the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit and then measures the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate
settlement. The Company reevaluates these uncertain tax positions on a quarterly basis. Potential interest and penalties associated with such uncertain tax positions is recorded as a component of income tax expense.



Recent Accounting Pronouncements.In September
2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.
SFAS 157 applies to previous accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, with certain exceptions which are described below. In February
2008, the FASB issued FASB Staff Position (FSP) 157-1,Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13, which amends SFAS 157 to exclude certain leasing transactions from its scope. Also in February 2008, the FASB issued FSP 157-2, Effective Date of FASB Statement No. 157,which delays
the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008, except for items that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active. FSP 157-3 provides an example to illustrate key considerations
in determining the fair value of a financial asset when the market for that financial asset is not active. The Company does not expect the adoption of SFAS 157 to have a material impact on its financial condition or results of operations.



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



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



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



In March 2008, the FASB issued SFAS 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133,which requires additional disclosures about the objectives and strategies of the derivative instruments and hedging activities, the method of
accounting for such instruments under SFAS 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on the Companys financial condition and results of operations.
SFAS 161 is effective for fiscal years beginning after November 15, 2008. The Company does not expect the adoption of SFAS 161 to have a material impact on its financial condition or results of operations.



In April 2008, the FASB issued FSP 142-3, Determination of the Useful Life
of Intangible Assets, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of FSP 142-3 is to improve the consistency
between the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets, and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), Business Combinations,
and other accounting literature. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and must be applied prospectively to intangible assets acquired after the effective date. Early adoption is prohibited. Given that FSP
142-3 applies to intangible assets acquired after the effective date, the Company is not able to determine whether its adoption will have a material impact on its financial condition or results of operations.



Note 3.    Balance Sheet Detail



|                              |  |                |          |   |                   |   |          |  
|----------------------------- |  | -------------- | -------- | - | ----------------- | - | -------- | -
|                              |  | October 3,2008 |          |   | September 28,2007 |  
|(in thousands)                |  |                |          |   |                   |   |          |  
|Inventories                   |  |                |          |   |                   |   |          |  
|Raw materials and parts       |  | $              | 77,447   |   |                   | $ | 64,130   |  
|Work in process               |  |                | 25,091   |   |                   |   | 24,842   |  
|Finished goods                |  |                | 58,501   |   |                   |   | 51,561   |  
|                              |  |                |          |   |                   |   |          |  
|                              |  | $              | 161,039  |   |                   | $ | 140,533  |  
|                              |  |                |          |   |                   |   |          |  
|Property, plant and equipment |  |                |          |   |                   |   |          |  
|Land and land improvements    |  | $              | 6,519    |   |                   | $ | 6,415    |  
|Buildings                     |  |                | 102,746  |   |                   |   | 102,413  |  
|Machinery and equipment       |  |                | 174,284  |   |                   |   | 167,655  |  
|Construction in progress      |  |                | 8,585    |   |                   |   | 11,102   |  
|                              |  |                |          |   |                   |   |          |  
|                              |  |                | 292,134  |   |                   |   | 287,585  |  
|Accumulated depreciation      |  |                | (181,791 | ) |                   |   | (176,793 | )
|                              |  |                |          |   |                   |   |          |  
|                              |  | $              | 110,343  |   |                   | $ | 110,792  |  
|                              |  |                |          |   |                   |   |          |  
|Accrued liabilities           |  |                |          |   |                   |   |          |  
|Payroll and employee benefits |  | $              | 61,480   |   |                   | $ | 64,590   |  
|Deferred service revenue      |  |                | 35,404   |   |                   |   | 35,815   |  
|Contract advances             |  |                | 20,760   |   |                   |   | 13,309   |  
|Product warranty              |  |                | 13,867   |   |                   |   | 12,454   |  
|Other                         |  |                | 35,662   |   |                   |   | 32,941   |  
|                              |  |                |          |   |                   |   |          |  
|                              |  | $              | 167,173  |   |                   | $ | 159,109  |  
|                              |  |                |          |   |                   |   |          |  



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 4.    Forward Exchange Contracts



The Company enters into foreign exchange forward contracts to minimize the
short-term impact of foreign currency fluctuations on assets and liabilities denominated in non-functional currencies. These contracts are accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activities. Typically,
gains and losses on these contracts are substantially offset by transaction losses and gains on the underlying balances being hedged. During fiscal years 2008, 2007 and 2006, net foreign currency gains (losses) relating to these arrangements were
$2.1 million, $(1.0) million and $(1.3) million, respectively. These amounts were recorded in selling, general and administrative expenses.



The Companys foreign exchange forward contracts generally range from one to 12 months in original maturity. A summary follows of all foreign
exchange forward contracts that were outstanding as of October 3, 2008:



|                  |  |                   |       |                        |   |        
|----------------- |  | ----------------- | ----- | ---------------------- | - | -------
|                  |  | NotionalValueSold |       | NotionalValuePurchased
|(in thousands)    |  |                   |       |                        |   |        
|Australian dollar |  | $                 |      |                        | $ | 46,334 
|Euro              |  |                   |      |                        |   | 39,907 
|British pound     |  |                   |      |                        |   | 17,374 
|Japanese yen      |  |                   | 4,822 |                        |   |       
|Swedish krona     |  |                   |      |                        |   | 2,788  
|Canadian dollar   |  |                   | 2,460 |                        |   |       
|Korean won        |  |                   | 1,895 |                        |   |       
|                  |  |                   |       |                        |   |        
|Total             |  | $                 | 9,177 |                        | $ | 106,403
|                  |  |                   |       |                        |   |        



Note
5.    Acquisitions



During fiscal year
2008, the Company acquired certain assets and assumed certain liabilities of Analogix, Inc. (the Analogix Business) for approximately $11 million in cash and assumed net debt. Under the terms of the acquisition, the Company might make
additional purchase price payments of up to $4 million over a three-year period, depending on the future financial performance of the Analogix Business and certain operational milestones. The Analogix Business designs, manufactures, markets, sells
and services consumables and instrumentation for automated compound purification using flash chromatography, and became part of the Scientific Instruments segment.



During fiscal year 2008, the Company also acquired Oxford Diffraction Ltd. (Oxford Diffraction) for
approximately $39 million in cash and assumed net debt. Under the terms of the acquisition, the Company might make additional purchase price payments of up to $10 million over a three-year period, depending on the future financial performance of the
Oxford Diffraction business. Oxford Diffraction designs, manufactures, markets, sells and services instruments and consumables for x-ray crystallography, an analytical technique used by scientists in pharmaceutical research and other research
laboratories to determine the structure of both small molecules and large molecules such as proteins. Oxford Diffraction became part of the Scientific Instruments segment. The Company recorded a one-time charge of $1.7 million during fiscal year
2008 to immediately expense acquired in-process research and development related to projects that were in process at Oxford Diffraction but incomplete at the time of the acquisition.



During fiscal year 2006, the Company acquired PL International Limited (Polymer Labs) and IonSpec Corporation
(IonSpec), both of which became part of the Scientific Instruments segment. Including contingent consideration payments, the Company has paid an aggregate purchase price of approximately $47 million for Polymer Labs and approximately $18
million for IonSpec through October 3, 2008.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



None of the acquisitions made during fiscal years 2008 or 2006 was material on either an individual
or an aggregated basis. As a result, pro forma sales, earnings from operations, net earnings and net earnings per share have not been presented. However, the Companys Consolidated Statement of Earnings for fiscal years 2008, 2007 and 2006
include the results of operations of the acquired companies described above since the effective dates of their respective purchases.



Contingent Consideration Arrangements.    The Company is, from time to time, obligated to pay additional cash purchase price
amounts in the event that certain financial or operational milestones are met by acquired businesses. As of October 3, 2008, up to a maximum of $43.9 million could be payable through April 2011 under contingent consideration arrangements
relating to acquired businesses. Amounts subject to these arrangements can be earned over the respective measurement period, depending on the performance of the acquired business relative to certain financial and/or operational targets.



The following table summarizes contingent consideration arrangements as of
October 3, 2008:



|                      |  |                                   |      |                   |         |                             |              
|--------------------- |  | --------------------------------- | ---- | ----------------- | ------- | --------------------------- | -------------
|Acquired Business     |  | RemainingAmountAvailable(maximum) |      | MeasurementPeriod |         | Measurement Period End Date
|                      |  | (in millions)                     |      |                   |         |                            
|PL International Ltd. |  | $                                 | 15.3 |                   | 3 years |                             | December 2008
|IonSpec Corporation   |  |                                   | 14.0 |                   | 3 years |                             | April 2009   
|Oxford Diffraction    |  |                                   | 10.0 |                   | 3 years |                             | April 2011   
|Analogix Business     |  |                                   | 4.0  |                   | 3 years |                             | December 2010
|Other                 |  |                                   | 0.6  |                   | 2 years |                             | July 2010    
|                      |  |                                   |      |                   |         |                             |              
|Total                 |  | $                                 | 43.9 |                   |         |                             |              
|                      |  |                                   |      |                   |         |                             |              



Note
6.    Goodwill and Other Intangible Assets



Changes in the carrying amount of goodwill for each of the Companys reportable segments in fiscal years 2008 and 2007 follow:



|                                                |  |                       |         |   |                    |   |              |  |   |         |  
|----------------------------------------------- |  | --------------------- | ------- | - | ------------------ | - | ------------ |  | - | ------- | -
|                                                |  | ScientificInstruments |         |   | VacuumTechnologies |   | TotalCompany | 
|(in thousands)                                  |  |                       |         |   |                    |   |              |  |   |         |  
|Balance as of September 29, 2006                |  | $                     | 180,597 |   |                    | $ | 966          |  | $ | 181,563 |  
|Contingent payments on prior-years acquisitions |  |                       | 4,115   |   |                    |   |             |  |   | 4,115   |  
|Foreign currency impacts and other adjustments  |  |                       | 8,082   |   |                    |   |             |  |   | 8,082   |  
|                                                |  |                       |         |   |                    |   |              |  |   |         |  
|Balance as of September 28, 2007                |  |                       | 192,794 |   |                    |   | 966          |  |   | 193,760 |  
|Fiscal year 2008 acquisitions                   |  |                       | 29,712  |   |                    |   |             |  |   | 29,712  |  
|Contingent payments on prior-years acquisitions |  |                       | 4,057   |   |                    |   |             |  |   | 4,057   |  
|Foreign currency impacts and other adjustments  |  |                       | (9,321  | ) |                    |   |             |  |   | (9,321  | )
|                                                |  |                       |         |   |                    |   |              |  |   |         |  
|Balance as of October 3, 2008                   |  | $                     | 217,242 |   |                    | $ | 966          |  | $ | 218,208 |  
|                                                |  |                       |         |   |                    |   |              |  |   |         |  



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                            |  |                 |        |                         |   |         |     |  |   |       
|--------------------------- |  | --------------- | ------ | ----------------------- | - | ------- | --- |  | - | ------
|                            |  | October 3, 2008
|                            |  | Gross           |        | AccumulatedAmortization |   |         | Net
|(in thousands)              |  |                 |        |                         |   |         |     |  |   |       
|Intangible assets           |  |                 |        |                         |   |         |     |  |   |       
|Existing technology         |  | $               | 16,503 |                         | $ | (9,699  | )   |  | $ | 6,804 
|Patents and core technology |  |                 | 40,680 |                         |   | (14,253 | )   |  |   | 26,427
|Trade names and trademarks  |  |                 | 2,425  |                         |   | (1,946  | )   |  |   | 479   
|Customer lists              |  |                 | 13,090 |                         |   | (10,278 | )   |  |   | 2,812 
|Other                       |  |                 | 2,972  |                         |   | (2,522  | )   |  |   | 450   
|                            |  |                 |        |                         |   |         |     |  |   |       
|Total                       |  | $               | 75,670 |                         | $ | (38,698 | )   |  | $ | 36,972
|                            |  |                 |        |                         |   |         |     |  |   |       



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



Actual aggregate
amortization expense relating to intangible assets recorded in the three most recent fiscal years as well as estimated amortization expense for the next five fiscal years and thereafter follow:



|                               |  |   |       
|------------------------------ |  | - | ------
|(in thousands)                 |  |   |       
|Actual amortization expense    |  |   |       
|Fiscal year 2006               |  | $ | 8,468 
|                               |  |   |       
|Fiscal year 2007               |  | $ | 8,141 
|                               |  |   |       
|Fiscal year 2008               |  | $ | 8,553 
|                               |  |   |       
|                               | 
|Estimated amortization expense |  |   |       
|Fiscal year 2009               |  | $ | 7,878 
|Fiscal year 2010               |  |   | 7,376 
|Fiscal year 2011               |  |   | 5,150 
|Fiscal year 2012               |  |   | 4,185 
|Fiscal year 2013               |  |   | 3,628 
|Thereafter                     |  |   | 8,755 
|                               |  |   |       
|Total                          |  | $ | 36,972
|                               |  |   |       



Note
7.    Restructuring Costs



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



F-15



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following tables set forth changes in the Companys aggregate liability relating to all
restructuring plans (including the Fiscal Year 2007 Plan described below) during fiscal years 2008, 2007 and 2006 as well as total restructuring expense and other related costs recorded since the inception of those plans:



|                                               |  |                  |        |      |                    |   |       |       |  |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | ---- | ------------------ | - | ----- | ----- |  | - | ------ | -
|                                               |  | Employee-Related |        |      | Facilities-Related |   |       | Total | 
|(in thousands)                                 |  |                  |        |      |                    |   |       |       |  |   |        |  
|Balance at September 30, 2005                  |  | $                | 1,002  |      |                    | $ | 1,692 |       |  | $ | 2,694  |  
|Charges to expense, net                        |  |                  | 3      |      |                    |   | (38   | )     |  |   | (35    | )
|Cash payments                                  |  |                  | (772   | )    |                    |   | (814  | )     |  |   | (1,586 | )
|Foreign currency impacts and other adjustments |  |                  |       |      |                    |   | (22   | )     |  |   | (22    | )
|                                               |  |                  |        |      |                    |   |       |       |  |   |        |  
|Balance at September 29, 2006                  |  |                  | 233    |      |                    |   | 818   |       |  |   | 1,051  |  
|Charges to expense, net                        |  |                  | 2,321  |      |                    |   |      |       |  |   | 2,321  |  
|Cash payments                                  |  |                  | (393   | )    |                    |   | (127  | )     |  |   | (520   | )
|Foreign currency impacts and other adjustments |  |                  | 61     |      |                    |   | 16    |       |  |   | 77     |  
|                                               |  |                  |        |      |                    |   |       |       |  |   |        |  
|Balance at September 28, 2007                  |  |                  | 2,222  |      |                    |   | 707   |       |  |   | 2,929  |  
|Charges to expense, net                        |  |                  | 1,291  |      |                    |   | 761   |       |  |   | 2,052  |  
|Cash payments                                  |  |                  | (1,702 | )    |                    |   | (408  | )     |  |   | (2,110 | )
|Foreign currency impacts and other adjustments |  |                  | 29     |      |                    |   | (16   | )     |  |   | 13     |  
|                                               |  |                  |        |      |                    |   |       |       |  |   |        |  
|Balance at October 3, 2008                     |  | $                | 1,840  |      |                    | $ | 1,044 |       |  | $ | 2,884  |  
|                                               |  |                  |        |      |                    |   |       |       |  |   |        |  
|Total expense since inception of plans         |  |                  |        |      |                    |   |       |       |  |   |        |  
|(in millions)                                  |  |                  |        |      |                    |   |       |       |  |   |        |  
|Restructuring expense                          |  |                  | $      | 19.7 |                   
|                                               |  |                  |        |      |                    |   |       |       |  |   |        |  
|Other restructuring-related costs(1)           |  |                  | $      | 8.8  |                   
|                                               |  |                  |        |      |                    |   |       |       |  |   |        |  



|(1) |  | These costs related primarily to employee retention and relocation costs and accelerated depreciation of assets disposed upon the closure of facilities. Of the $8.8 million in other
related costs, $3.4 million, $2.0 million and $0.2 million was recorded in fiscal year 2008, 2007 and 2006, respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



As a result of the plan, a number of employee positions have been or will be relocated or eliminated and certain facilities
will be consolidated. These actions primarily impact the Scientific Instruments segment and involve the elimination of between approximately 40 and 60 positions.



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



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table sets forth changes in the Companys restructuring liability relating to the
foregoing plan during fiscal year 2008 and 2007:



|                                               |  |                  |        |     |                    |   |      |       |  |   |        |  
|---------------------------------------------- |  | ---------------- | ------ | --- | ------------------ | - | ---- | ----- |  | - | ------ | -
|                                               |  | Employee-Related |        |     | Facilities-Related |   |      | Total | 
|(in thousands)                                 |  |                  |        |     |                    |   |      |       |  |   |        |  
|Balance at September 29, 2006                  |  | $                |       |     |                    | $ |     |       |  | $ |       |  
|Charges to expense, net                        |  |                  | 2,301  |     |                    |   |     |       |  |   | 2,301  |  
|Cash payments                                  |  |                  | (145   | )   |                    |   |     |       |  |   | (145   | )
|Foreign currency impacts and other adjustments |  |                  | 66     |     |                    |   |     |       |  |   | 66     |  
|                                               |  |                  |        |     |                    |   |      |       |  |   |        |  
|Balance at September 28, 2007                  |  |                  | 2,222  |     |                    |   |     |       |  |   | 2,222  |  
|Charges to expense, net                        |  |                  | 1,291  |     |                    |   | 761  |       |  |   | 2,052  |  
|Cash payments                                  |  |                  | (1,702 | )   |                    |   | (252 | )     |  |   | (1,954 | )
|Foreign currency impacts and other adjustments |  |                  | 29     |     |                    |   | 42   |       |  |   | 71     |  
|                                               |  |                  |        |     |                    |   |      |       |  |   |        |  
|Balance at October 3, 2008                     |  | $                | 1,840  |     |                    | $ | 551  |       |  | $ | 2,391  |  
|                                               |  |                  |        |     |                    |   |      |       |  |   |        |  
|Total expense since inception of plan          |  |                  |        |     |                    |   |      |       |  |   |        |  
|(in millions)                                  |  |                  |        |     |                    |   |      |       |  |   |        |  
|Restructuring expense                          |  |                  | $      | 4.4 |                   
|                                               |  |                  |        |     |                    |   |      |       |  |   |        |  
|Other restructuring-related costs              |  |                  | $      | 5.4 |                   
|                                               |  |                  |        |     |                    |   |      |       |  |   |        |  



The restructuring
charges of $2.1 million and $2.3 million recorded during fiscal year 2008 and 2007, respectively related to employee termination benefits and costs associated with the closure of leased facilities. The Company also incurred other
restructuring-related costs of $3.4 million and $2.0 million during fiscal year 2008 and 2007, respectively. These costs were related to employee retention costs and facilities-related costs including decommissioning costs and non-cash charges for
accelerated depreciation of assets to be disposed upon the closure of facilities.



Note 8.    Warranty and Indemnification Obligations



Product Warranties.    The Companys
products are generally subject to warranties. Liabilities for the estimated future costs of repair or replacement are established and charged to cost of sales at the time the related sale is recognized. The amount of liability to be recorded is
based on managements best estimates of future warranty costs after considering historical and projected product failure rates and product repair costs. Changes in the Companys estimated liability for product warranty during fiscal years
2008 and 2007 follow:



|                                            |  |                   |         |   |                   |   |         |  
|------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                            |  | Fiscal Year Ended |        
|                                            |  | October 3,2008    |         |   | September 28,2007 |  
|(in thousands)                              |  |                   |         |   |                   |   |         |  
|Beginning balance                           |  | $                 | 12,454  |   |                   | $ | 11,042  |  
|Charges to costs and expenses               |  |                   | 22,184  |   |                   |   | 21,167  |  
|Acquired warranty liabilities               |  |                   | 1,098   |   |                   |   |        |  
|Warranty expenditures and other adjustments |  |                   | (21,869 | ) |                   |   | (19,755 | )
|                                            |  |                   |         |   |                   |   |         |  
|Ending balance                              |  | $                 | 13,867  |   |                   | $ | 12,454  |  
|                                            |  |                   |         |   |                   |   |         |  



Indemnification
Obligations.    FIN 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, requires a guarantor to recognize a liability for and/or
disclose obligations it has undertaken in relation to the issuance of the guarantee. Under this guidance, arrangements involving indemnification clauses are subject to the disclosure requirements of FIN 45 only.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company is subject to certain indemnification obligations to VMS (formerly VAI) and VSEA in
connection with the Instruments business as conducted by VAI prior to the Distribution (described in Note 1). These indemnification obligations cover a variety of aspects of the Companys business, including, but not limited to, employee, tax,
intellectual property, litigation and environmental matters. Certain of the agreements containing these indemnification obligations are disclosed as exhibits to the Companys Annual Report on Form 10-K. The estimated fair value of these
indemnification obligations is not considered to be material.



The Company is subject to certain indemnification obligations to Jabil in connection with the Companys sale of its Electronics Manufacturing Business to Jabil. These indemnification obligations cover certain aspects of the
Companys conduct of the Electronics Manufacturing Business prior to its sale to Jabil, including, but not limited to, employee, tax, litigation and environmental matters. The agreement containing these indemnification obligations is disclosed
as an exhibit to the Companys Annual Report on Form 10-K. The estimated fair value of these indemnification obligations is not considered to be material.



The Companys By-Laws require it to indemnify its officers and directors, as well as those who act as directors and officers of other entities at
the request of the Company, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceedings arising out of their services to the Company. In addition, the Company has entered into
separate indemnity agreements with each director and officer that provide for indemnification of these directors and officers under certain circumstances. The form of these indemnity agreements is disclosed as an exhibit to the Companys Annual
Report on Form 10-K. The indemnification obligations are more fully described in these indemnity agreements and the Companys By-Laws. The Company purchases insurance to cover claims or a portion of any claims made against its directors and
officers. Since a maximum obligation is not explicitly stated in the Companys By-Laws or these indemnity agreements and will depend on the facts and circumstances that arise out of any future claims, the overall maximum amount of the
obligations cannot reasonably be estimated. Historically, the Company has not made payments related to these indemnification obligations and the estimated fair value of these indemnification obligations is not considered to be material.



As is customary in the Companys industry and as provided for in
local law in the U.S. and other jurisdictions, many of the Companys standard contracts provide remedies to customers and other third parties with whom the Company enters into contracts, such as defense, settlement or payment of judgment for
intellectual property claims related to the use of its products. From time to time, the Company also agrees to indemnify customers, suppliers, contractors, lessors, lessees and others with whom it enters into contracts, against loss, expense and/or
liability arising from various triggering events related to the sale and the use of the Companys products and services, the use of their goods and services, the use of facilities and other matters covered by such contracts, usually up to a
specified maximum amount. In addition, from time to time, the Company sometimes also agrees to indemnify these parties against claims related to undiscovered liabilities, additional product liability or environmental obligations. Claims made under
such indemnification obligations have been insignificant and the estimated fair value of these indemnification obligations is not considered to be material.



Note 9.    Debt and Credit Facilities



Credit Facilities.    The Company maintains relationships with banks in many countries from whom it sometimes obtains bank
guarantees and short-term standby letters of credit. These guarantees and letters of credit relate primarily to advance payments and deposits made to the Companys subsidiaries by customers for which separate liabilities are recorded in the
Consolidated Financial Statements. As of October 3, 2008, a total of $21.2 million of these bank guarantees and letters of credit were outstanding. No amounts had been drawn by beneficiaries under these or any other outstanding guarantees or
letters of credit as of that date.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Long-term Debt.    As of October 3, 2008, the Company had a $18.8
million term loan outstanding with a U.S. financial institution, compared to $25.0 million at September 28, 2007. As of both October 3, 2008 and September 28, 2007, the fixed interest rate on the term loan was 6.7%. The term loan
contains certain covenants that limit future borrowings and the payment of cash dividends and require the maintenance of certain levels of working capital and operating results. The Company was in compliance with all restrictive covenants of the
term loan agreement at October 3, 2008.



The following
table summarizes future principal payments on long-term debt outstanding as of October 3, 2008:



|                                          |  |              |   |       |   |       |  |      |   |      |   |            |  |   |   |  |   |       |  |   |       
|----------------------------------------- |  | ------------ | - | ----- | - | ----- |  | ---- | - | ---- | - | ---------- |  | - | - |  | - | ----- |  | - | ------
|                                          |  | Fiscal Years |   | Total
|                                          |  | 2009         |   | 2010  |   | 2011  |  | 2012 |   | 2013 |   | Thereafter | 
|(in thousands)                            |  |              |   |       |   |       |  |      |   |      |   |            |  |   |   |  |   |       |  |   |       
|Long-term debt(including current portion) |  | $            |  |       | $ | 6,250 |  | $    |  |      | $ | 6,250      |  | $ |  |  | $ | 6,250 |  | $ | 18,750
|                                          |  |              |   |       |   |       |  |      |   |      |   |            |  |   |   |  |   |       |  |   |       



Based upon rates
currently available to the Company for debt with similar terms and remaining maturities, the carrying amount of long-term debt approximates the estimated fair value.



Note 10.    Operating Lease Commitments



As of October 3, 2008, the Company was committed to minimum rentals for certain facilities and other leased assets
under long-term non-cancelable operating leases (net of non-cancelable sublease income) as follows:



|               |  |   |       
|-------------- |  | - | ------
|(in thousands) |  |   |       
|Fiscal Year    |  |   |       
|2009           |  | $ | 8,602 
|2010           |  |   | 6,473 
|2011           |  |   | 3,303 
|2012           |  |   | 2,040 
|2013           |  |   | 1,621 
|Thereafter     |  |   | 3,380 
|               |  |   |       
|Total          |  | $ | 25,419
|               |  |   |       



Rent expense for
fiscal years 2008, 2007 and 2006, was $17.4 million, $16.1 million and $14.9 million, respectively.



Note 11.    Retirement Plans



Certain employees of the Company in the U.S. are eligible to participate in the Companys sponsored, defined contribution retirement plan. For employee contributions made after certain minimum employment
conditions have been met, the Company is obligated to match the participants contribution up to 6% of their eligible compensation. Participants are entitled, upon termination or retirement, to receive their account balances, which are held by
a third-party trustee. The Company has no defined benefit plans in the U.S. In addition to the U.S. retirement plan, a number of the Companys non-U.S. subsidiaries have retirement plans for regular full-time employees. Although most of the
plans are defined contribution plans, several of them are defined benefit plans. Total expenses for all retirement plans amounted to $13.0 million, $12.5 million and $12.3 million for fiscal years 2008, 2007 and 2006, respectively.



As of September 28, 2007, the Company adopted the provisions of SFAS
158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS 158 requires an employer to recognize the funded status of defined
benefit



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



postretirement plans (other than multiemployer plans) as an asset or liability in its consolidated balance sheet and recognize changes in the funded status
in the year in which the changes occur through comprehensive income. SFAS 158 also requires the measurement date of the plans funded status to be the same as a companys fiscal year-end.



Under SFAS 158, the components of the amount recognized in accumulated other
comprehensive income at October 3, 2008 and September 28, 2007 were as follows:



|                                                                                                                                 |  |                |       |   |                   |   |       |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | - | ----------------- | - | ----- | -
|                                                                                                                                 |  | October 3,2008 |       |   | September 28,2007 |  
|(in thousands)                                                                                                                   |  |                |       |   |                   |   |       |  
|Components of accumulated other comprehensive income (before taxes of $261 and $522 in fiscal years 2008 and 2007,
respectively) |  |                |       |   |                   |   |       |  
|Prior service costs                                                                                                              |  | $              | 179   |   |                   | $ | 204   |  
|Transition assets                                                                                                                |  |                | (28   | ) |                   |   | (40   | )
|Net actuarial loss                                                                                                               |  |                | 2,089 |   |                   |   | 2,805 |  
|Foreign currency changes and other adjustments                                                                                   |  |                | 647   |   |                   |   |      |  
|                                                                                                                                 |  |                |       |   |                   |   |       |  
|Total                                                                                                                            |  | $              | 2,887 |   |                   | $ | 2,969 |  
|                                                                                                                                 |  |                |       |   |                   |   |       |  



The portion of this
amount expected to be amortized into net periodic pension cost in fiscal year 2009 is not significant.



Changes in the projected benefit obligation, fair value of plan assets and funded status relating to the Companys defined benefit pension plans
follows:



|                                                                    |  |                   |         |   |                   |   |         |                   |  |   |         |  
|------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|                                                                    |  | Fiscal Year Ended |        
|                                                                    |  | October 3,2008    |         |   | September 28,2007 |   |         | September 29,2006 | 
|(in thousands)                                                      |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Change in projected benefit obligation                              |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Projected benefit obligation at beginning of fiscal year            |  | $                 | 53,333  |   |                   | $ | 52,071  |                   |  | $ | 46,085  |  
|Service cost, including plan participant contributions              |  |                   | 1,573   |   |                   |   | 1,721   |                   |  |   | 1,680   |  
|Interest cost                                                       |  |                   | 2,957   |   |                   |   | 2,601   |                   |  |   | 2,138   |  
|Actuarial (gain) loss                                               |  |                   | (5,367  | ) |                   |   | (6,110  | )                 |  |   | (150    | )
|Foreign currency changes                                            |  |                   | (3,749  | ) |                   |   | 4,161   |                   |  |   | 3,047   |  
|Benefit payments                                                    |  |                   | (1,094  | ) |                   |   | (1,111  | )                 |  |   | (729    | )
|                                                                    |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Projected benefit obligation at end of fiscal year                  |  | $                 | 47,653  |   |                   | $ | 53,333  |                   |  | $ | 52,071  |  
|                                                                    |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Change in fair value of plan assets and funded status               |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Fair value of plan assets at beginning of fiscal year               |  | $                 | 44,236  |   |                   | $ | 37,279  |                   |  | $ | 31,786  |  
|Actual return on plan assets                                        |  |                   | (2,731  | ) |                   |   | 3,163   |                   |  |   | 2,471   |  
|Employer and plan participant contributions                         |  |                   | 1,762   |   |                   |   | 1,617   |                   |  |   | 1,592   |  
|Foreign currency changes                                            |  |                   | (2,869  | ) |                   |   | 3,288   |                   |  |   | 2,159   |  
|Benefit and expense payments                                        |  |                   | (1,094  | ) |                   |   | (1,111  | )                 |  |   | (729    | )
|                                                                    |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Fair value of plan assets at end of fiscal year                     |  |                   | 39,304  |   |                   |   | 44,236  |                   |  |   | 37,279  |  
|Projected benefit obligation at end of fiscal year                  |  |                   | (47,653 | ) |                   |   | (53,333 | )                 |  |   | (52,071 | )
|                                                                    |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Projected benefit obligation in excess of fair value of plan assets |  |                   | (8,349  | ) |                   |   | (9,097  | )                 |  |   | (14,792 | )
|Unrecognized prior service cost                                     |  |                   |        |   |                   |   |        |                   |  |   | 142     |  
|Unrecognized net actuarial loss                                     |  |                   |        |   |                   |   |        |                   |  |   | 10,023  |  
|                                                                    |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Net accrued benefit cost at end of fiscal year                      |  | $                 | (8,349  | ) |                   | $ | (9,097  | )                 |  | $ | (4,627  | )
|                                                                    |  |                   |         |   |                   |   |         |                   |  |   |         |  



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Additional information pertaining to the Companys defined benefit pension plans as of the end
of fiscal years 2008 and 2007 is outlined below:



|                                                                                          |  |                |         |   |                   |   |         |  
|----------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                          |  | October 3,2008 |         |   | September 28,2007 |  
|(dollars in thousands)                                                                    |  |                |         |   |                   |   |         |  
|Amounts included in the Consolidated Balance Sheet                                        |  |                |         |   |                   |   |         |  
|Other (long-term) assets                                                                  |  | $              | 5,241   |   |                   | $ | 3,915   |  
|Current liabilities                                                                       |  |                | (22     | ) |                   |   | (19     | )
|Other (long-term) liabilities                                                             |  |                | (13,568 | ) |                   |   | (12,993 | )
|                                                                                          |  |                |         |   |                   |   |         |  
|Net accrued benefit cost at end of fiscal year                                            |  | $              | (8,349  | ) |                   | $ | (9,097  | )
|                                                                                          |  |                |         |   |                   |   |         |  
|Accumulated benefit obligation for all defined benefit pension plans                      |  | $              | 42,974  |   |                   | $ | 48,477  |  
|                                                                                          |  |                |         |   |                   |   |         |  
|Weighted-average assumptions used to determine benefit obligations                        |  |                |         |   |                   |   |         |  
|Discount rate                                                                             |  |                | 6.0     | % |                   |   | 5.5     | %
|Rate of compensation increases                                                            |  |                | 3.5     | % |                   |   | 3.6     | %
|                                                                                          |  |               
|Weighted-average asset allocations by asset category                                      |  |                |         |   |                   |   |         |  
|Equity securities                                                                         |  |                | 35      | % |                   |   | 48      | %
|Debt securities                                                                           |  |                | 52      |   |                   |   | 42      |  
|Cash                                                                                      |  |                | 3       |   |                   |   | 2       |  
|Real estate                                                                               |  |                | 2       |   |                   |   | 1       |  
|Other                                                                                     |  |                | 8       |   |                   |   | 7       |  
|                                                                                          |  |                |         |   |                   |   |         |  
|Total                                                                                     |  |                | 100     | % |                   |   | 100     | %
|                                                                                          |  |                |         |   |                   |   |         |  
|Additional information                                                                    |  |                |         |   |                   |   |         |  
|Increase (decrease) in minimum liability included in other comprehensive income after tax |  | $              | 965     |   |                   | $ | (2,504  | )
|                                                                                          |  |                |         |   |                   |   |         |  



Information relating
to defined benefit pension plans with an accumulated benefit obligation in excess of the fair value of plan assets follows:



|                               |  |                |        |                   |   |       
|------------------------------ |  | -------------- | ------ | ----------------- | - | ------
|                               |  | October 3,2008 |        | September 28,2007
|(in thousands)                 |  |                |        |                   |   |       
|Projected benefit obligation   |  | $              | 37,367 |                   | $ | 42,302
|Accumulated benefit obligation |  | $              | 32,688 |                   | $ | 37,446
|Fair value of plan assets      |  | $              | 23,777 |                   | $ | 29,289



Net Periodic
Pension Cost.    Net periodic pension cost for defined benefit pension plans is determined in accordance with SFAS 87, Employers Accounting for Pensions, as amended, and is made up of several components that
reflect different aspects of the Companys pension-related financial arrangements and the cost of benefits earned by participating employees. These components are determined using certain actuarial assumptions.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The components of the Companys net periodic pension cost relating to defined benefit pension
plans and the weighted-average assumptions used to determine that cost follow:



|                                                                         |  |                |        |   |                   |   |        |                   |  |   |        |  
|------------------------------------------------------------------------ |  | -------------- | ------ | - | ----------------- | - | ------ | ----------------- |  | - | ------ | -
|                                                                         |  | October 3,2008 |        |   | September 28,2007 |   |        | September 29,2006 | 
|(dollars in thousands)                                                   |  |                |        |   |                   |   |        |                   |  |   |        |  
|Components of net periodic pension cost                                  |  |                |        |   |                   |   |        |                   |  |   |        |  
|Service cost, net of plan participant contributions                      |  | $              | 1,232  |   |                   | $ | 1,387  |                   |  | $ | 1,331  |  
|Interest cost                                                            |  |                | 2,957  |   |                   |   | 2,601  |                   |  |   | 2,138  |  
|Expected return on plan assets                                           |  |                | (2,657 | ) |                   |   | (2,126 | )                 |  |   | (1,702 | )
|Amortization of prior service cost and actuarial gains and losses        |  |                | (3     | ) |                   |   | 460    |                   |  |   | 522    |  
|                                                                         |  |                |        |   |                   |   |        |                   |  |   |        |  
|Net periodic pension cost                                                |  | $              | 1,529  |   |                   | $ | 2,322  |                   |  | $ | 2,289  |  
|                                                                         |  |                |        |   |                   |   |        |                   |  |   |        |  
|Weighted-average assumptions used to determine net periodic pension cost |  |                |        |   |                   |   |        |                   |  |   |        |  
|Discount rate                                                            |  |                | 5.5    | % |                   |   | 4.8    | %                 |  |   | 4.6    | %
|Expected return on plan assets                                           |  |                | 5.8    | % |                   |   | 5.4    | %                 |  |   | 5.2    | %
|Rate of compensation increases                                           |  |                | 3.6    | % |                   |   | 4.1    | %                 |  |   | 3.9    | %



Basis for
Assumptions.    The Company utilizes yields on country-specific, long-term Corporate AA bond indices (typically 10- or 15-year indices based on the expected timing of benefit payments) as the basis for its discount rate
assumptions for each of its defined benefit pension plans. With regard to the expected return assumption, plan assets in most countries are invested in low-risk, long-term fixed income investments such as direct insurance policies and guaranteed
insurance contracts. For these asset types, the expected rate of return is established either by reference to yields on comparable long-term corporate bond indices in that country or the return guaranteed by the issuer of the investment security
(net of expenses). The exception to this is in the United Kingdom, where the majority of plan assets are invested in equity securities, with the remainder invested typically in corporate bonds, real estate and cash. Due to the nature of these
investments, long-term money and corporate bond yields and an implied equity risk premium are considered in establishing the asset return assumption for the defined benefit pension plan in the United Kingdom.



Employer Contributions.    During the fiscal year
ended October 3, 2008, the Company made contributions totaling approximately $1.3 million to its defined benefit pension plans. The Company currently anticipates contributing an additional $1.2 million to its remaining defined benefit pension
plans in fiscal year 2009, primarily in the United Kingdom.



Estimated Future Benefit Payments.As of October 3, 2008, benefit payments, which reflect expected future service (as appropriate), are expected to be as follows:



|              |  |   |    
|------------- |  | - | ---
|(in millions) |  |   |    
|Fiscal Year   |  |   |    
|2009          |  | $ | 0.9
|2010          |  | $ | 0.9
|2011          |  | $ | 1.0
|2012          |  | $ | 1.1
|2013          |  | $ | 1.3
|2014-2018     |  | $ | 8.9



Other
Postretirement Benefits.    At the Distribution (described in Note 1), the Company assumed responsibility for certain post-employment and postretirement benefits for active employees of the Company; the responsibility for all
others, principally retirees of VAI, remained with VMS, although the



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Company is obligated to reimburse VMS for certain costs relating to certain VAI retirees. The Companys portion of assets and liabilities as well as
related expenses for shared post-employment and postretirement benefits have been included in these Consolidated Financial Statements. As of both October 3, 2008 and September 28, 2007, the Company had accrued $0.6 million, respectively,
in current liabilities relating to these obligations. The Company also had accrued $5.6 million as of October 3, 2008 and $6.3 million as of September 28, 2007, in other liabilities relating to these obligations.



Note 12.    Contingencies



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



The Company and VSEA are
each obligated (under the terms of the Distribution described in Note 1) to indemnify VMS for one-third of certain costs (after adjusting for any insurance recoveries and tax benefits recognized or realized by VMS for such costs) relating to
(a) environmental investigation, monitoring and/or remediation activities at certain facilities previously operated by VAI and third-party claims made in connection with environmental conditions at those facilities, and (b) U.S.
Environmental Protection Agency or third-party claims alleging that VAI or VMS is a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA) in connection
with certain sites to which VAI allegedly shipped manufacturing waste for recycling, treatment or disposal (the CERCLA sites). With respect to the facilities formerly operated by VAI, VMS is overseeing the environmental investigation,
monitoring and/or remediation activities, in most cases under the direction of or in consultation with federal, state and/or local agencies, and handling third-party claims. VMS is also handling claims relating to the CERCLA sites. The Company is
also undertaking environmental investigation and/or monitoring activities at one of its facilities under the direction of or in consultation with governmental agencies.



Various uncertainties make it difficult to estimate future costs for certain of these environmental-related activities, specifically
external legal expenses, VMS internal oversight costs, third-party claims and a former VAI facility where the likelihood and scope of further environmental-related activities are difficult to assess. As of October 3, 2008, it was
nonetheless estimated that the Companys future exposure for these environmental-related costs ranged in the aggregate from $1.2 million to $2.6 million. The time frame over which these costs are expected to be incurred varies with each type of
cost, ranging up to approximately 30 years as of October 3, 2008. No amount in the foregoing range of estimated future costs is discounted, and no amount in the range is believed to be more probable of being incurred than any other amount in
such range. The Company therefore had an accrual of $1.2 million as of October 3, 2008 for these future environmental-related costs.



Sufficient knowledge has been gained to be able to better estimate other costs for future environmental-related activities. As of October 3, 2008, it
was estimated that the Companys future costs for these environmental-related activities ranged in the aggregate from $2.3 million to $13.1 million. The time frame over which these costs are expected to be incurred varies, ranging up to
approximately 30 years as of October 3, 2008. As to each of these ranges of cost estimates, it was determined that a particular amount within the range was a better estimate than any other amount within the range. Together, these amounts
totaled $5.8 million at October 3, 2008. Because both the amount and timing of the recurring portion of these costs were reliably determinable, that portion is discounted at 4%, net of inflation. The Company therefore had an accrual of $4.0
million as of October 3, 2008, which represents its best estimate of these future environmental-related costs after discounting estimated recurring future costs. This accrual is in addition to the $1.2 million described in the preceding
paragraph.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



At October 3, 2008, the Companys reserve for environmental-related costs, based upon
future environmental-related costs estimated by the Company as of that date, was calculated as follows:



|                                          |  |                |      |                    |   |                             |  |   |     | 
|----------------------------------------- |  | -------------- | ---- | ------------------ | - | --------------------------- |  | - | --- | 
|                                          |  | RecurringCosts |      | Non-RecurringCosts |   | TotalAnticipatedFuture Cost | 
|(in millions)                             |  |                |      |                    |   |                             |  |   |     | 
|Fiscal Year                               |  |                |      |                    |   |                             |  |   |     | 
|2009                                      |  | $              | 0.3  |                    | $ | 0.3                         |  | $ | 0.6 | 
|2010                                      |  |                | 0.2  |                    |   | 0.3                         |  |   | 0.5 | 
|2011                                      |  |                | 0.2  |                    |   | 0.3                         |  |   | 0.5 | 
|2012                                      |  |                | 0.3  |                    |   | 0.4                         |  |   | 0.7 | 
|2013                                      |  |                | 0.3  |                    |   | 0.2                         |  |   | 0.5 | 
|Thereafter                                |  |                | 3.6  |                    |   | 0.5                         |  |   | 4.1 | 
|                                          |  |                |      |                    |   |                             |  |   |     | 
|Total costs                               |  | $              | 4.9  |                    | $ | 2.0                         |  |   | 6.9 | 
|                                          |  |                |      |                    |   |                             |  |   |     | 
|Less imputed interest                     |  |                | (1.7 | )                 
|                                          |  |                |      |                    |   |                             |  |   |     | 
|Reserve amount                            |  |                | 5.2  |                   
|Less current portion                      |  |                | (0.6 | )                 
|                                          |  |                |      |                    |   |                             |  |   |     | 
|Long-term (included in Other liabilities) |  | $              | 4.6  |                   
|                                          |  |                |      |                    |   |                             |  |   |     | 



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



The Company has not reduced any environmental-related liability in anticipation of recoveries from third parties. However,
an insurance company has agreed to pay a portion of certain of VAIs (now VMS) future environmental-related costs, for which the Company has an indemnification obligation, and the Company therefore has a long-term receivable of
$1.0 million (discounted at 4%, net of inflation) in Other assets as of October 3, 2008, for the Companys share of that insurance recovery.



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



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



Note 13.    Stockholders Equity



Stock Rights, Stock Plans and Stock Repurchase Programs



On April 2, 1999, stockholders of record of VAI on March 24, 1999 received in the Distribution (described in Note 1) one share of the
Companys common stock for each share of VAI common stock held on April 2, 1999. Each stockholder also received one preferred stock purchase right (Right) for each share of common stock distributed, entitling the stockholder to
purchase one one-thousandth of a share of



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Participating Preferred Stock, par value $0.01 per share, for $200.00 (subject to adjustment), in the event of certain changes in the Companys
ownership. The Participating Preferred Stock is designed so that each one one-thousandth of a share has economic and voting terms similar to those of one share of common stock. The Rights will expire no later than March 2009. As of October 3,
2008, no Rights were eligible to be exercised and none had been exercised through that date.



Omnibus Stock Plan.Effective April 2, 1999, the Company adopted the Omnibus Stock Plan (OSP) under which shares of common stock can be issued to officers,
directors and employees. The OSP has been approved by the Companys stockholders and is administered by the Compensation Committee of the Companys Board of Directors. At October 3, 2008, a total of 4,124,000 shares were available for
issuance under the OSP.



Employee Stock Purchase
Plan.During fiscal year 2000, the Companys Board of Directors approved the Employee Stock Purchase Plan (ESPP), which was approved by the Companys stockholders in February 2003. Under the ESPP,
eligible Company employees may set aside, through payroll deductions, between 1% and 10% of eligible compensation for purchases of the Companys common stock. The participants purchase price is the lower of 85% of the stocks market
value on the enrollment date or 85% of the stocks market value on the purchase date. Prior to fiscal year 2006, enrollment dates occurred every six months and purchase dates occurred each quarter. Beginning in fiscal year 2006, the Company
reduced the length of each offering period under its ESPP from six months to three months. At October 3, 2008, a total of 188,000 shares were available for issuance under the ESPP.



Stock Repurchase Programs.    In February 2008, the Companys Board of Directors approved a
new stock repurchase program under which the Company was authorized to utilize up to $100 million to repurchase shares of its common stock. This repurchase program is effective through December 31, 2009. During fiscal year 2008, the Company
repurchased and retired 1,070,000 shares under this authorization at an aggregate cost of $55.4 million. As of October 3, 2008, the Company had remaining authorization to repurchase $44.6 million of its common stock under this program.



In January 2007, the Companys Board of Directors
approved a stock repurchase program under which the Company is authorized to utilize up to $100 million to repurchase shares of its common stock. This repurchase program was effective through December 31, 2008. During fiscal year 2008, the
Company repurchased and retired 876,000 shares under this authorization at an aggregate cost of $50.4 million, which completed this repurchase program. During fiscal year 2007, the Company repurchased and retired 862,000 shares under this
authorization at an aggregate cost of $49.6 million.



In
November 2005, the Companys Board of Directors approved a stock repurchase program under which the Company was authorized to utilize up to $100 million to repurchase shares of its common stock. This repurchase program was effective through
September 30, 2007. During fiscal year 2007, the Company repurchased and retired 820,000 shares under this authorization at an aggregate cost of $37.0 million, which completed this repurchase program. During fiscal year 2006, the Company
repurchased and retired 1,515,000 shares under this authorization at an aggregate cost of $63.0 million.



Other Stock Repurchases.During fiscal year 2008, the Company repurchased and retired 16,000 shares tendered to it by
employees in settlement of employee tax withholding obligations due from those employees upon the vesting of restricted stock.



Share-Based Compensation



Stock Options.    Under the OSP, the Company periodically grants stock options to officers, directors and employees. The
exercise price for stock options granted under the OSP may not be less than 100% of the fair market value at the date of the grant. Options granted are exercisable at the times and on the terms established by the Compensation Committee, but not
later than ten years after the date of grant (except in the event of death, after which an option is exercisable for three years). Options granted generally become exercisable in cumulative installments of one-third each year commencing one year
following the date of grant.



F-25



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes stock option activity under the OSP for the periods indicated:



|                                  |  |                |   |  |                              |  |                                  |  |                                         |  |                        
|--------------------------------- |  | -------------- | - |  | ---------------------------- |  | -------------------------------- |  | --------------------------------------- |  | -----------------------
|                                  |  | Shares         |   |  | WeightedAverageExercisePrice |  | AggregateGrant DateFair Value(1) |  | WeightedAverageRemainingContractualLife |  | AggregateIntrinsicValue
|                                  |  | (in thousands) |   |  |                              |  | (in millions)                    |  | (in years)                              |  | (in millions)          
|Outstanding at September 30, 2005 |  | 3,246          |   |  | $  28.80                     |  |                                  |  |                                         |  |                        
|Granted                           |  | 538            |   |  | $  41.88                     |  | $  7.0                           |  |                                         |  |                        
|Exercised                         |  | (1,225         | ) |  | $  24.85                     |  |                                  |  |                                         |  |                        
|Cancelled or expired              |  | (66            | ) |  | $  38.99                     |  |                                  |  |                                         |  |                        
|                                  |  |                |   |  |                              |  |                                  |  |                                         |  |                        
|Outstanding at September 29, 2006 |  | 2,493          |   |  | $  33.30                     |  |                                  |  | 5.4                                     |  | $  31.4                
|Granted                           |  | 339            |   |  | $  46.13                     |  | $  5.0                           |  |                                         |  |                        
|Exercised                         |  | (1,001         | ) |  | $  28.12                     |  |                                  |  |                                         |  |                        
|Cancelled or expired              |  | (48            | ) |  | $  41.22                     |  |                                  |  |                                         |  |                        
|                                  |  |                |   |  |                              |  |                                  |  |                                         |  |                        
|Outstanding at September 28, 2007 |  | 1,783          |   |  | $  38.43                     |  |                                  |  | 5.6                                     |  | $  44.9                
|Granted                           |  | 301            |   |  | $  66.71                     |  | $  5.9                           |  |                                         |  |                        
|Exercised                         |  | (410           | ) |  | $  35.07                     |  |                                  |  |                                         |  |                        
|Cancelled or expired              |  | (14            | ) |  | $  59.04                     |  |                                  |  |                                         |  |                        
|                                  |  |                |   |  |                              |  |                                  |  |                                         |  |                        
|Outstanding at October 3, 2008    |  | 1,660          |   |  | $  44.21                     |  |                                  |  | 5.7                                     |  | $  24.0                
|                                  |  |                |   |  |                              |  |                                  |  |                                         |  |                        
|Exercisable at October 3, 2008    |  | 1,030          |   |  | $  38.09                     |  |                                  |  | 4.6                                     |  | $  19.2                
|                                  |  |                |   |  |                              |  |                                  |  |                                         |  |                        



|(1) |  | After estimated forfeitures.
|--- |  | ----------------------------



The intrinsic value of options exercised in fiscal year 2008, 2007 and 2006 was $11.4 million, $26.2 million and $21.8 million, respectively.



Restricted (Nonvested) Stock.Under the OSP,
the Company also periodically grants restricted (nonvested) common stock to employees. Such grants are valued as of the grant date. These amounts are recognized by the Company as share-based compensation expense ratably over their respective vesting
periods, which range from one to three years.



The following
table summarizes restricted (nonvested) common stock activity under the OSP for the periods indicated:



|                                  |  |                |   |  |                                     |  |                              
|--------------------------------- |  | -------------- | - |  | ----------------------------------- |  | -----------------------------
|                                  |  | Shares         |   |  | WeightedAverageGrant DateFair Value |  | AggregateGrant DateFair Value
|                                  |  | (in thousands) |   |  |                                     |  | (in millions)                
|Outstanding at September 30, 2005 |  | 25             |   |  | $  36.18                            |  |                              
|Granted                           |  | 27             |   |  | $  42.51                            |  | $  1.2                       
|                                  |  |                |   |  |                                     |  |                              
|Outstanding at September 29, 2006 |  | 52             |   |  | $  39.51                            |  |                              
|Granted                           |  | 59             |   |  | $  47.83                            |  | $  2.8                       
|                                  |  |                |   |  |                                     |  |                              
|Outstanding at September 28, 2007 |  | 111            |   |  | $  43.92                            |  |                              
|Granted                           |  | 46             |   |  | $  67.55                            |  | $  3.1                       
|Vested                            |  | (52            | ) |  | $  43.48                            |  |                              
|                                  |  |                |   |  |                                     |  |                              
|Outstanding at October 3, 2008    |  | 105            |   |  | $  54.51                            |  |                              
|                                  |  |                |   |  |                                     |  |                              



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Share-based compensation expense related to restricted (nonvested) common stock was $2.6 million,
$2.2 million and $0.6 million in fiscal years 2008, 2007 and 2006, respectively. As of October 3, 2008, there was $2.0 million of total unrecognized compensation expense related to restricted (nonvested) common stock granted under the OSP. This
expense is expected to be recognized over a weighted-average period of 0.8 years.



Performance Shares.    During fiscal year 2008, the Company implemented a long-term performance share program. Under this program, vested shares of the Companys common stock could be
granted under the OSP to certain key employees, depending on the Companys performance relative to pre-determined long-term earnings per share targets.



As of October 3, 2008, targeted performance shares had been awarded for two performance periods, key aspects of which are summarized below:



|                         |  |                          |  |                                     
|------------------------ |  | ------------------------ |  | ------------------------------------
|Performance period       |  | Range of shares issuable |  | Timing of share issuance (if earned)
|Fiscal years 2008  2010 |  | 0  73,000               |  | Fiscal year 2011                    
|Fiscal years 2009  2011 |  | 0  121,800              |  | Fiscal year 2012                    



Non-Employee
Director Stock Units.    Under the terms of the OSP, on the first business day following each annual meeting of the Companys stockholders, each person then serving as a non-employee director is automatically granted
stock units having an initial value of $45,000 beginning in fiscal year 2008 and $25,000 prior to fiscal year 2008. The stock units will vest upon termination of the directors service on the Board of Directors and will then be satisfied by
issuance of shares of the Companys common stock. Each non-employee director who holds stock units will not have rights as a stockholder with respect to the shares issuable thereunder until such shares are paid out. The stock units are not
transferable, except to the non-employee directors designated beneficiary or estate in the event of his or her death. During fiscal year 2008, the Company granted stock units with an aggregate value of $225,000 to non-employee members of its
Board of Directors (of which there were five) and recognized the total value of $225,000 as share-based compensation expense at the time of grant. During fiscal year 2007, the Company granted stock units with an aggregate value of $125,000 to
non-employee members of its Board of Directors (of which there were five) and recognized the total value of $125,000 as share-based compensation expense at the time of grant. During fiscal year 2006, the Company granted stock units with an aggregate
value of $150,000 to non-employee members of its Board of Directors (of which there were six) and recognized the total value of $150,000 as share-based compensation expense at the time of grant.



Employee Stock Purchase Plan.    Under the ESPP,
employees purchased 79,100 shares for $3.9 million, 96,600 shares for $3.8 million and 114,500 shares for $3.6 million, during fiscal years 2008, 2007 and 2006, respectively.



During fiscal year 2008, the weighted-average estimated fair value of the option to purchase a share of the Companys
common stock under the ESPP was $13.88 per share for offering periods during the year. During fiscal year 2007, the weighted-average estimated fair value of the option to purchase a share of the Companys common stock under the ESPP was $10.87
per share for offering periods during the year. During fiscal year 2006, the weighted-average estimated fair value of the option to purchase a share of the Companys common stock under the ESPP was $8.24 per share for offering periods during
the year.



Share-Based Compensation under SFAS
123(R).    Share-Based Compensation Expense. The Company accounts for share-based awards in accordance with the provisions of SFAS 123(R), Share-Based Payment.



F-27



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                                                                |  |                   |        |   |                   |   |        |                   |  |   |        |  
|------------------------------------------------------------------------------- |  | ----------------- | ------ | - | ----------------- | - | ------ | ----------------- |  | - | ------ | -
|                                                                                |  | Fiscal Year Ended |       
|                                                                                |  | October 3,2008    |        |   | September 28,2007 |   |        | September 29,2006 | 
|(in thousands, except per share amounts)                                        |  |                   |        |   |                   |   |        |                   |  |   |        |  
|Share-based compensation expense by award type:                                 |  |                   |        |   |                   |   |        |                   |  |   |        |  
|Employee and non-employee director stock options                                |  | $                 | (5,484 | ) |                   | $ | (6,653 | )                 |  | $ | (7,005 | )
|Employee stock purchase plan                                                    |  |                   | (1,048 | ) |                   |   | (948   | )                 |  |   | (913   | )
|Restricted (nonvested) stock(1)                                                 |  |                   | (2,916 | ) |                   |   | (2,220 | )                 |  |   | (644   | )
|Non-employee director stock units                                               |  |                   | (225   | ) |                   |   | (125   | )                 |  |   | (150   | )
|                                                                                |  |                   |        |   |                   |   |        |                   |  |   |        |  
|Total share-based compensation expense (effect on earnings before income taxes) |  |                   | (9,673 | ) |                   |   | (9,946 | )                 |  |   | (8,712 | )
|Effect on income tax expense                                                    |  |                   | 2,686  |   |                   |   | 3,622  |                   |  |   | 3,172  |  
|                                                                                |  |                   |        |   |                   |   |        |                   |  |   |        |  
|Effect on net earnings                                                          |  | $                 | (6,987 | ) |                   | $ | (6,324 | )                 |  | $ | (5,540 | )
|                                                                                |  |                   |        |   |                   |   |        |                   |  |   |        |  



|(1) |  | Includes $332,000 in fiscal year 2008 and $128,000 in fiscal year 2007 related to shares granted in connection with the Companys fiscal year 2007 restructuring plan.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of October 3, 2008, the unrecorded
deferred share-based compensation balance related to stock options was $4.4 million. This amount will be recognized as expense using the straight-line attribution method over an estimated weighted-average amortization period of 1.3 years.



Share-based compensation expense recorded has been included in the
Companys Consolidated Statement of Earnings as follows:



|                                    |  |                   |       |                   |   |                   |  |   |      
|----------------------------------- |  | ----------------- | ----- | ----------------- | - | ----------------- |  | - | -----
|                                    |  | Fiscal Year Ended
|                                    |  | October 3,2008    |       | September 28,2007 |   | September 29,2006
|(in thousands)                      |  |                   |       |                   |   |                   |  |   |      
|Cost of sales                       |  | $                 | 463   |                   | $ | 443               |  | $ | 448  
|Selling, general and administrative |  |                   | 8,728 |                   |   | 8,970             |  |   | 7,723
|Research and development            |  |                   | 482   |                   |   | 533               |  |   | 541  
|                                    |  |                   |       |                   |   |                   |  |   |      
|Total                               |  | $                 | 9,673 |                   | $ | 9,946             |  | $ | 8,712
|                                    |  |                   |       |                   |   |                   |  |   |      



Capitalizable
share-based compensation expense relating to inventory or deferred cost of sales (a component of deferred profit) was not significant at October 3, 2008, September 28, 2007 or September 29, 2006.



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Valuation Assumptions.    The Company estimates the fair value of stock
options granted under the OSP and shares issued under the ESPP using the Black-Scholes option-pricing model, consistent with the provisions of SFAS 123(R), SAB 107 and the Companys prior-period pro forma disclosures of net earnings,
including share-based compensation (determined under a fair value method as prescribed by SFAS 123). The fair value of each option grant under the OSP and each share issuance under the ESPP was estimated on the date of grant using the
Black-Scholes model with the following weighted-average assumptions:



|                                                  |  |                   |   |  |                   |   |  |                   |  
|------------------------------------------------- |  | ----------------- | - |  | ----------------- | - |  | ----------------- | -
|                                                  |  | Fiscal Year Ended |  
|                                                  |  | October 3,2008    |   |  | September 28,2007 |   |  | September 29,2006 |  
|Employee and non-employee director stock options: |  |                   |   |  |                   |   |  |                   |  
|Expected dividend yield                           |  | 0.0               | % |  | 0.0               | % |  | 0.0               | %
|Risk-free interest rate                           |  | 3.4               | % |  | 4.6               | % |  | 4.5               | %
|Expected price volatility                         |  | 29                | % |  | 30                | % |  | 30                | %
|Expected life (in years)                          |  | 4.5               |   |  | 4.5               |   |  | 4.5               |  
|                                                  |  |                   |  
|Employee stock purchase plan purchases:           |  |                   |   |  |                   |   |  |                   |  
|Expected dividend yield                           |  | 0.0               | % |  | 0.0               | % |  | 0.0               | %
|Risk-free interest rate                           |  | 2.1               | % |  | 5.0               | % |  | 4.5               | %
|Expected price volatility                         |  | 39                | % |  | 28                | % |  | 30                | %
|Expected life (in years)                          |  | 0.3               |   |  | 0.3               |   |  | 0.3               |  



Option-pricing models
require the input of highly subjective assumptions, including the expected forfeiture rate and life of the option and the expected price volatility of the underlying stock. The Company estimates the expected forfeiture and expected life assumptions
based on historical experience. In determining the Companys expected stock price volatility assumption, the Company reviews both the historical and implied volatility of the Companys common stock, with implied volatility based on the
implied volatility of publicly traded options on the Companys common stock. Unless the volume or maturity of these publicly traded options does not satisfy the conditions to use implied volatility under SAB 107, the Company determines the
expected stock price volatility assumption using a combination of historical and implied volatility. The expected stock price volatility assumption for fiscal year 2008 was determined using the historical volatility of the Companys common
stock. For fiscal years 2007 and 2006, the expected stock price volatility assumption was determined using a combination of the historical and implied volatility of the Companys common stock.



Note 14.    Income Taxes



The sources of earnings before income taxes follow:



|                             |  |                   |         |   |                   |   |         |                   |  |   |        |  
|---------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ------ | -
|                             |  | Fiscal Year Ended |        
|                             |  | October 3,2008    |         |   | September 28,2007 |   |         | September 29,2006 | 
|(in thousands)               |  |                   |         |   |                   |   |         |                   |  |   |        |  
|United States                |  | $                 | (7,359  | ) |                   | $ | (3,387  | )                 |  | $ | (7,317 | )
|Foreign                      |  |                   | 110,078 |   |                   |   | 100,215 |                   |  |   | 81,981 |  
|                             |  |                   |         |   |                   |   |         |                   |  |   |        |  
|Earnings before income taxes |  | $                 | 102,719 |   |                   | $ | 96,828  |                   |  | $ | 74,664 |  
|                             |  |                   |         |   |                   |   |         |                   |  |   |        |  



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Income tax expense on earnings consists of the following:



|                   |  |                   |        |   |                   |   |        |                   |  |   |         |  
|------------------ |  | ----------------- | ------ | - | ----------------- | - | ------ | ----------------- |  | - | ------- | -
|                   |  | Fiscal Year Ended |       
|                   |  | October 3,2008    |        |   | September 28,2007 |   |        | September 29,2006 | 
|(in thousands)     |  |                   |        |   |                   |   |        |                   |  |   |         |  
|Current            |  |                   |        |   |                   |   |        |                   |  |   |         |  
|U.S. Federal       |  | $                 | (1,670 | ) |                   | $ | 7,730  |                   |  | $ | 5,629   |  
|Foreign            |  |                   | 39,909 |   |                   |   | 32,728 |                   |  |   | 30,907  |  
|State and local    |  |                   | 1,157  |   |                   |   | 2,158  |                   |  |   | 958     |  
|                   |  |                   |        |   |                   |   |        |                   |  |   |         |  
|Total current      |  |                   | 39,396 |   |                   |   | 42,616 |                   |  |   | 37,494  |  
|                   |  |                   |        |   |                   |   |        |                   |  |   |         |  
|Deferred           |  |                   |        |   |                   |   |        |                   |  |   |         |  
|U.S. Federal       |  |                   | (2,753 | ) |                   |   | (8,002 | )                 |  |   | (9,038  | )
|Foreign            |  |                   | (442   | ) |                   |   | 422    |                   |  |   | (1,872  | )
|State and local    |  |                   | 73     |   |                   |   | (1,824 | )                 |  |   | (1,989  | )
|                   |  |                   |        |   |                   |   |        |                   |  |   |         |  
|Total deferred     |  |                   | (3,122 | ) |                   |   | (9,404 | )                 |  |   | (12,899 | )
|                   |  |                   |        |   |                   |   |        |                   |  |   |         |  
|Income tax expense |  | $                 | 36,274 |   |                   | $ | 33,212 |                   |  | $ | 24,595  |  
|                   |  |                   |        |   |                   |   |        |                   |  |   |         |  



Deferred income tax
expense for fiscal year 2008 includes $0.5 million attributable to changes in tax rates.



Deferred tax assets and liabilities are recognized for the temporary differences between the tax basis and reported amounts of assets and liabilities, and tax loss and credit carry-forwards. Their significant
components follow:



|                                            |  |                |        |   |                   |   |       
|------------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------
|                                            |  | October 3,2008 |        |   | September 28,2007
|(in thousands)                              |  |                |        |   |                   |   |       
|Assets                                      |  |                |        |   |                   |   |       
|Capitalized research and development costs  |  | $              | 22,646 |   |                   | $ | 20,071
|Deferred compensation                       |  |                | 16,154 |   |                   |   | 15,475
|Inventory                                   |  |                | 12,623 |   |                   |   | 11,898
|Deferred profit                             |  |                | 3,564  |   |                   |   | 4,938 
|Product warranty                            |  |                | 3,827  |   |                   |   | 3,833 
|Loss and credit carry-forwards              |  |                | 3,623  |   |                   |   | 1,398 
|Other                                       |  |                | 2,434  |   |                   |   | 4,451 
|                                            |  |                |        |   |                   |   |       
|Gross deferred tax assets                   |  |                | 64,871 |   |                   |   | 62,064
|Valuation allowance                         |  |                | (837   | ) |                   |   |      
|                                            |  |                |        |   |                   |   |       
|Total deferred tax assets                   |  |                | 64,034 |   |                   |   | 62,064
|                                            |  |                |        |   |                   |   |       
|Liabilities                                 |  |                |        |   |                   |   |       
|Depreciation and amortization               |  |                | 18,782 |   |                   |   | 17,431
|Currency translation adjustment             |  |                | 5,406  |   |                   |   | 5,689 
|Unremitted earnings of foreign subsidiaries |  |                | 836    |   |                   |   |      
|                                            |  |                |        |   |                   |   |       
|Total deferred tax liabilities              |  |                | 25,024 |   |                   |   | 23,120
|                                            |  |                |        |   |                   |   |       
|Net deferred tax assets                     |  | $              | 39,010 |   |                   | $ | 38,944
|                                            |  |                |        |   |                   |   |       



As of October 3,
2008, the Companys foreign manufacturing and sales subsidiaries had accumulated approximately $120.1 million of earnings that have been reinvested in their operations. The Company has not provided U.S. tax on these earnings. Determination of
the amount of unrecognized deferred tax liability on such earnings is not practicable.



F-30



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



As of October 3, 2008, the Company had a U.S. foreign tax credit carry-forward of approximately
$4.2 million that expires in 2019. If realized, $2.5 million of this carry-forward will be accounted for as a credit to stockholders equity. The balance of this carry-forward has been recognized as a deferred tax asset.



As of October 3, 2008, the Company had U.S. research and development
credit carry-forwards of approximately $1.0 million that begin to expire in 2028 and have been recognized as a deferred tax asset.



As of October 3, 2008, the Company had foreign loss carry-forwards of approximately $3.2 million that have been recognized as deferred tax assets. A
full valuation allowance has been provided on $1.4 million of this loss carry-forward. If realized the associated tax benefit will be recorded as a reduction in goodwill. In fiscal year 2006, foreign income tax expense included $0.6 million relating
to loss carry-forwards that were recorded as a reduction to goodwill.



The difference between the reported income tax rate on earnings before income taxes and the federal statutory income tax rate is attributable to the following:



|                                              |  |                   |   |  |                   |   |  |                   |  
|--------------------------------------------- |  | ----------------- | - |  | ----------------- | - |  | ----------------- | -
|                                              |  | Fiscal Year Ended |  
|                                              |  | October 3,2008    |   |  | September 28,2007 |   |  | September 29,2006 |  
|Federal statutory income tax rate             |  | 35.0              | % |  | 35.0              | % |  | 35.0              | %
|State and local taxes, net of federal benefit |  | 0.8               |   |  | 0.2               |   |  | (0.9              | )
|Foreign taxes                                 |  | (2.2              | ) |  | (0.8              | ) |  | 0.1               |  
|Other                                         |  | 1.7               |   |  | (0.1              | ) |  | (1.3              | )
|                                              |  |                   |   |  |                   |   |  |                   |  
|Reported income tax rate                      |  | 35.3              | % |  | 34.3              | % |  | 32.9              | %
|                                              |  |                   |   |  |                   |   |  |                   |  



In both fiscal years
2008 and 2007, accumulated other comprehensive income was decreased approximately $0.6 million due to the tax benefit of certain postretirement liabilities recognized during those periods.



Effective September 29, 2007 (the first day of fiscal year 2008), the
Company adopted FIN 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No 109, which addresses accounting for, and disclosure of, uncertain tax positions. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result of the adoption of FIN 48, the Company reduced its liability for unrecognized tax benefits and
increased deferred tax assets by $2.4 million and $0.6 million, respectively. These adjustments were aggregated and accounted for as a cumulative effect of a change in accounting principle, which resulted in an increase to retained earnings of $3.0
million. In addition, the Company reclassified certain tax liabilities for unrecognized tax benefits, as well as related potential penalties and interest, from current liabilities to long-term liabilities. The total amount of unrecognized tax
benefits excluding interest thereon as of the date of adoption was $6.9 million, substantially all of which would impact the effective tax rate if realized. The Companys policy to include interest and penalties related to income taxes within
income tax expense did not change as a result of implementing FIN 48. As of the date of adoption of FIN 48, the Company had accrued $0.7 million in income taxes payable for the payment of interest and penalties related to unrecognized tax benefits.



At October 3, 2008, the total amount of unrecognized tax
benefits excluding interest thereon was $5.9 million, substantially all of which would impact the effective tax rate if realized during the year. The Company accrued $0.2 million and reversed $0.4 million of interest and penalties related to these
unrecognized tax benefits during fiscal year 2008. Income taxes payable at October 3, 2008, included accrued interest and penalties of $0.5 million. Although the timing and outcome of income tax audits is highly uncertain, it is possible that
certain unrecognized tax benefits could decrease in the next twelve months due to lapse of certain statutes of limitation and result in a reduction in the annual effective tax rate of up to 1%. Any such reduction could be impacted by other changes
in unrecognized tax benefits.



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes the activity related to unrecognized tax benefits:



|                                                                     |  |   |        |  
|-------------------------------------------------------------------- |  | - | ------ | -
|(in thousands)                                                       |  |   |        |  
|Balance at September 29, 2007 (first day of fiscal year 2008)        |  | $ | 6,924  |  
|Additions based on tax positions related to the current year         |  |   | 1,501  |  
|Expiration of the statute of limitations for the assessment of taxes |  |   | (2,514 | )
|                                                                     |  |   |        |  
|Balance at October 3, 2008                                           |  | $ | 5,911  |  
|                                                                     |  |   |        |  



The Companys
U.S. federal, state and local and foreign income tax returns are subject to audit by relevant tax authorities. During fiscal year 2008, the U.S. Internal Revenue Service closed its examination of the Companys fiscal year 2003 U.S. federal tax
return without assessing additional taxes. The Companys income tax reporting periods beginning with fiscal year 2005 for the U.S. and fiscal year 2003 for the Companys major foreign jurisdictions remain generally open to audit by
relevant tax authorities.



Note 15.    Net Earnings Per
Share



Basic earnings per share are calculated based on net
earnings and the weighted-average number of shares of common stock outstanding during the reported period. Diluted earnings per share are calculated similarly, except that the weighted-average number of common shares outstanding during the period is
increased by the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued. The dilutive effect of potential common stock (including outstanding stock options,
ESPP shares, non-employee director stock units and restricted stock) is reflected in diluted earnings per share by application of the treasury stock method, which includes consideration of share-based compensation and the tax benefit thereon as
required by SFAS 123(R).



In fiscal years 2008, 2007 and 2006,
options to purchase approximately 255,000, 10,000 and 452,000 shares, respectively, were excluded from the calculation of diluted earnings per share as their effect was anti-dilutive.



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



|                                              |  |                   |  |                   |  |                  
|--------------------------------------------- |  | ----------------- |  | ----------------- |  | -----------------
|                                              |  | Fiscal Year Ended
|                                              |  | October 3,2008    |  | September 28,2007 |  | September 29,2006
|(in thousands)                                |  |                   |  |                   |  |                  
|Weighted-average basic shares outstanding     |  | 29,620            |  | 30,457            |  | 30,929           
|Net effect of dilutive potential common stock |  | 452               |  | 547               |  | 495              
|                                              |  |                   |  |                   |  |                  
|Weighted-average diluted shares outstanding   |  | 30,072            |  | 31,004            |  | 31,424           
|                                              |  |                   |  |                   |  |                  



Note
16.    Industry and Geographic Segments



Industry Segments.    For financial reporting purposes, the Companys operations are grouped into two business segments: Scientific Instruments and Vacuum Technologies. The Scientific Instruments segment
designs, develops, manufactures, markets, sells and services equipment and related software, consumable products, accessories and services for a broad range of life science, environmental, energy, and applied research and other applications
requiring identification, quantification and analysis of the composition or structure of liquids, solids or gases. The Vacuum Technologies segment designs, develops, manufactures, markets, sells and services vacuum products and related accessories
and services used to create, contain, control, measure and test vacuum environments in a broad range of life science, environmental, energy, and applied research and other applications requiring ultra-clean or high-vacuum environments. These
segments were determined in accordance SFAS 131, Disclosures about Segments of an Enterprise and Related Information.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



The Company operates various manufacturing and marketing operations outside of the U.S. In fiscal years 2008, 2007 and 2006, no single country outside of the U.S. accounted for more than 10% of total sales (based on
the geographic location of the customer). Except for the United Kingdom, no single country outside the U.S. accounted for more than 10% of total assets in fiscal years 2008, 2007 and 2006. Transactions between geographic areas are accounted for at
cost and are not included in sales.



Included in the total of
Other international sales are export sales recorded by U.S. entities in fiscal years 2008, 2007 and 2006 of approximately $53 million, $53 million and $62 million, respectively.



Industry Segments



|                                                |  |             |       |                |   |      |                    |      |                     |  |                             |     |   |      |   |     |      |  |      |     |      |  |      |     |      |   |      |  |      |     |      |   |      |  |   |    |  |   |    |  |   |    |  |   |    |  |   |   
|----------------------------------------------- |  | ----------- | ----- | -------------- | - | ---- | ------------------ | ---- | ------------------- |  | --------------------------- | --- | - | ---- | - | --- | ---- |  | ---- | --- | ---- |  | ---- | --- | ---- | - | ---- |  | ---- | --- | ---- | - | ---- |  | - | -- |  | - | -- |  | - | -- |  | - | -- |  | - | --
|                                                |  | Total Sales |       | PretaxEarnings |   |      | IdentifiableAssets |      | CapitalExpenditures |  | DepreciationandAmortization
|                                                |  | 2008        |       | 2007           |   | 2006 |                    | 2008 |                     |  | 2007                        |     |   | 2006 |   |     | 2008 |  | 2007 |     | 2006 |  | 2008 |     | 2007 |   | 2006 |  | 2008 |     | 2007 |   | 2006
|(in millions)                                   |  |             |       |                |   |      |                    |      |                     |  |                             |     |   |      |   |     |      |  |      |     |      |  |      |     |      |   |      |  |      |     |      |   |      |  |   |    |  |   |    |  |   |    |  |   |    |  |   |   
|Scientific Instruments                          |  | $           | 839   |                | $ | 762  |                    | $    | 686                 |  | $                           | 81  |   |      | $ | 79  |      |  | $    | 60  |      |  | $    | 695 |      | $ | 631  |  | $    | 610 |      | $ | 21   |  | $ | 16 |  | $ | 18 |  | $ | 25 |  | $ | 25 |  | $ | 23
|Vacuum Technologies                             |  |             | 174   |                |   | 159  |                    |      | 149                 |  |                             | 34  |   |      |   | 32  |      |  |      | 29  |      |  |      | 57  |      |   | 58   |  |      | 54  |      |   | 3    |  |   | 3  |  |   | 2  |  |   | 4  |  |   | 4  |  |   | 4 
|                                                |  |             |       |                |   |      |                    |      |                     |  |                             |     |   |      |   |     |      |  |      |     |      |  |      |     |      |   |      |  |      |     |      |   |      |  |   |    |  |   |    |  |   |    |  |   |    |  |   |   
|Total industry segments                         |  |             | 1,013 |                |   | 921  |                    |      | 835                 |  |                             | 115 |   |      |   | 111 |      |  |      | 89  |      |  |      | 752 |      |   | 689  |  |      | 664 |      |   | 24   |  |   | 19 |  |   | 20 |  |   | 29 |  |   | 29 |  |   | 27
|General corporate                               |  |             |      |                |   |     |                    |      |                    |  |                             | (13 | ) |      |   | (18 | )    |  |      | (16 | )    |  |      | 151 |      |   | 248  |  |      | 198 |      |   | 0    |  |   | 0  |  |   | 0  |  |   | 0  |  |   | 0  |  |   | 0 
|Impairment of private company equity investment |  |             |      |                |   |     |                    |      |                    |  |                             | (3  | ) |      |   |    |      |  |      |    |      |  |      |    |      |   |     |  |      |    |      |   |     |  |   |   |  |   |   |  |   |   |  |   |   |  |   |  
|Interest income                                 |  |             |      |                |   |     |                    |      |                    |  |                             | 6   |   |      |   | 6   |      |  |      | 4   |      |  |      |    |      |   |     |  |      |    |      |   |     |  |   |   |  |   |   |  |   |   |  |   |   |  |   |  
|Interest expense                                |  |             |      |                |   |     |                    |      |                    |  |                             | (2  | ) |      |   | (2  | )    |  |      | (2  | )    |  |      |    |      |   |     |  |      |    |      |   |     |  |   |   |  |   |   |  |   |   |  |   |   |  |   |  
|                                                |  |             |       |                |   |      |                    |      |                     |  |                             |     |   |      |   |     |      |  |      |     |      |  |      |     |      |   |      |  |      |     |      |   |      |  |   |    |  |   |    |  |   |    |  |   |    |  |   |   
|Total company                                   |  | $           | 1,013 |                | $ | 921  |                    | $    | 835                 |  | $                           | 103 |   |      | $ | 97  |      |  | $    | 75  |      |  | $    | 903 |      | $ | 937  |  | $    | 862 |      | $ | 24   |  | $ | 19 |  | $ | 20 |  | $ | 29 |  | $ | 29 |  | $ | 27
|                                                |  |             |       |                |   |      |                    |      |                     |  |                             |     |   |      |   |     |      |  |      |     |      |  |      |     |      |   |      |  |      |     |      |   |      |  |   |    |  |   |    |  |   |    |  |   |    |  |   |   



F-33



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Geographic Information



|                                  |  |                                  |       |                                    |   |      |             |      |     |                |      |      |   |      |   |      |      |  |   |      |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|--------------------------------- |  | -------------------------------- | ----- | ---------------------------------- | - | ---- | ----------- | ---- | --- | -------------- | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | - |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | - | --- | - |  | - | --- | - |  | - | --- | -
|                                  |  | Sales toUnaffiliatedCustomers(1) |       | IntergeographicSales to Affiliates |   |      | Total Sales |      |     | PretaxEarnings |     
|                                  |  | 2008                             |       | 2007                               |   | 2006 |             | 2008 |     |                | 2007 |      |   | 2006 |   |      | 2008 |  |   | 2007 |   |  | 2006 |       |   | 2008 |   |       | 2007 |  |   | 2006  |  
|(in millions)                     |  |                                  |       |                                    |   |      |             |      |     |                |      |      |   |      |   |      |      |  |   |      |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|United States                     |  | $                                | 279   |                                    | $ | 264  |             | $    | 273 |                | $    | 118  |   |      | $ | 97   |      |  | $ | 189  |   |  | $    | 397   |   |      | $ | 361   |      |  | $ | 462   |   |  | $ | 26  |   |  | $ | 28  |   |  | $ | 40  |  
|International                     |  |                                  | 734   |                                    |   | 657  |             |      | 562 |                |      | 357  |   |      |   | 304  |      |  |   | 288  |   |  |      | 1,091 |   |      |   | 961   |      |  |   | 850   |   |  |   | 105 |   |  |   | 101 |   |  |   | 68  |  
|                                  |  |                                  |       |                                    |   |      |             |      |     |                |      |      |   |      |   |      |      |  |   |      |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|Total geographic segments         |  |                                  | 1,013 |                                    |   | 921  |             |      | 835 |                |      | 475  |   |      |   | 401  |      |  |   | 477  |   |  |      | 1,488 |   |      |   | 1,322 |      |  |   | 1,312 |   |  |   | 131 |   |  |   | 129 |   |  |   | 108 |  
|Eliminations, corporate and other |  |                                  |      |                                    |   |     |             |      |    |                |      | (475 | ) |      |   | (401 | )    |  |   | (477 | ) |  |      | (475  | ) |      |   | (401  | )    |  |   | (477  | ) |  |   | (28 | ) |  |   | (32 | ) |  |   | (33 | )
|                                  |  |                                  |       |                                    |   |      |             |      |     |                |      |      |   |      |   |      |      |  |   |      |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|Total company                     |  | $                                | 1,013 |                                    | $ | 921  |             | $    | 835 |                | $    |     |   |      | $ |     |      |  | $ |     |   |  | $    | 1,013 |   |      | $ | 921   |      |  | $ | 835   |   |  | $ | 103 |   |  | $ | 97  |   |  | $ | 75  |  
|                                  |  |                                  |       |                                    |   |      |             |      |     |                |      |      |   |      |   |      |      |  |   |      |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|                                  |  |                                  |       |                                    |   |      |             |     
|                                  |  | IdentifiableAssets               |       | Long-LivedAssets(2)                |   |      |             |      |     |                |      |      |   |      |   |      |      |  |   |      |   |  |     
|                                  |  | 2008                             |       | 2007                               |   | 2006 |             | 2008 |     |                | 2007 |      |   | 2006 |   |      |      |  |   |      |   |  |      |       |   |      |   |       |      |  |   |       |  
|(in millions)                     |  |                                  |       |                                    |   |      |             |      |     |                |      |      |   |      |   |      |      |  |   |      |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|United States                     |  |                                  | $462  |                                    | $ | 551  |             | $    | 515 |                | $    | 67   |   |      | $ | 70   |      |  | $ | 72   |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|United Kingdom                    |  |                                  | 112   |                                    |   | 111  |             |      | 115 |                |      | 12   |   |      |   | 13   |      |  |   | 12   |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|Italy (3)                         |  |                                  |      |                                    |   |     |             |      |    |                |      | 14   |   |      |   | 15   |      |  |   | 14   |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|The Netherlands (3)               |  |                                  |      |                                    |   |     |             |      |    |                |      | 17   |   |      |   | 12   |      |  |   | 11   |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|Other international               |  |                                  | 329   |                                    |   | 275  |             |      | 232 |                |      | 15   |   |      |   | 17   |      |  |   | 12   |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|                                  |  |                                  |       |                                    |   |      |             |      |     |                |      |      |   |      |   |      |      |  |   |      |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|Total company                     |  |                                  | $903  |                                    | $ | 937  |             | $    | 862 |                | $    | 125  |   |      | $ | 127  |      |  | $ | 121  |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  
|                                  |  |                                  |       |                                    |   |      |             |      |     |                |      |      |   |      |   |      |      |  |   |      |   |  |      |       |   |      |   |       |      |  |   |       |   |  |   |     |   |  |   |     |   |  |   |     |  



|(1) |  | Sales to unaffiliated customers are generally reported based on the geographic location of the customer. No single customer accounted for more than 10% of sales in any of the fiscal
years presented.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Excludes goodwill, intangible assets and long-term deferred tax assets.
|--- |  | -----------------------------------------------------------------------

|(3) |  | Identifiable assets amounts are included in Other international amounts as they are not individually material.
|--- |  | --------------------------------------------------------------------------------------------------------------



Note 17.    Subsequent Events



During the first quarter of fiscal year 2009, the Company committed to a
plan to reduce its employee headcount in order to reduce operating costs and increase margins. The plan involves the termination of approximately 35 employees, mostly located in Europe, and will result in pretax restructuring and other
related costs totaling between $2.5 million and $3.5 million. These costs will relate primarily to one-time termination benefits. The Company currently anticipates that these costs will be recorded and that the related actions will be
substantially completed in the first half of fiscal year 2009. The restructuring costs include no non-cash components and are expected to be settled by the end of fiscal 2011.



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SCHEDULE II



VARIAN, INC. AND SUBSIDIARY COMPANIES



VALUATION AND QUALIFYING ACCOUNTS

for fiscal years 2008, 2007 and 2006

(In thousands)



|                                            |  |                              |             |                             |        |            |  |                          |  |   |     |  |   |      
|------------------------------------------- |  | ---------------------------- | ----------- | --------------------------- | ------ | ---------- |  | ------------------------ |  | - | --- |  | - | -----
|Description                                 |  | Balance atBeginningof Period |             | Charged toCosts andExpenses |        | Deductions |  | Balance atEnd ofPeriod  
|                                            |  |                              | Description |                             | Amount |           
|Allowance for Doubtful Accounts Receivable: |  |                              |             |                             |        |            |  |                          |  |   |     |  |   |      
|                                            |  |                              |             |                             |       
|Fiscal year 2008                            |  | $                            | 1,748       |                             | $      | (138)      |  | Write-offs & adjustments |  | $ | 358 |  | $ | 1,252
|                                            |  |                              |             |                             |        |            |  |                          |  |   |     |  |   |      
|Fiscal year 2007                            |  | $                            | 1,982       |                             | $      | (167)      |  | Write-offs & adjustments |  | $ | 67  |  | $ | 1,748
|                                            |  |                              |             |                             |        |            |  |                          |  |   |     |  |   |      
|Fiscal year 2006                            |  | $                            | 1,790       |                             | $      | 391        |  | Write-offs & adjustments |  | $ | 199 |  | $ | 1,982
|                                            |  |                              |             |                             |        |            |  |                          |  |   |     |  |   |      



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VARIAN, INC. AND SUBSIDIARY COMPANIES



Quarterly Consolidated Financial Data (Unaudited)



Amounts for each quarterly period in fiscal years 2008 and 2007 follow:



|                                        |  |                  |       |               |   |              |  |               |       |  |   |      
|--------------------------------------- |  | ---------------- | ----- | ------------- | - | ------------ |  | ------------- | ----- |  | - | -----
|                                        |  | Fiscal Year 2008
|                                        |  | FirstQuarter     |       | SecondQuarter |   | ThirdQuarter |  | FourthQuarter
|(in millions, except per share amounts) |  |                  |       |               |   |              |  |               |       |  |   |      
|Sales                                   |  | $                | 237.4 |               | $ | 248.2        |  | $             | 244.4 |  | $ | 282.5
|                                        |  |                  |       |               |   |              |  |               |       |  |   |      
|Gross profit                            |  | $                | 107.3 |               | $ | 112.9        |  | $             | 106.2 |  | $ | 126.1
|                                        |  |                  |       |               |   |              |  |               |       |  |   |      
|Net earnings                            |  | $                | 17.6  |               | $ | 15.8         |  | $             | 11.4  |  | $ | 21.7 
|                                        |  |                  |       |               |   |              |  |               |       |  |   |      
|Net earnings per share                  |  |                  |       |               |   |              |  |               |       |  |   |      
|Basic                                   |  | $                | 0.58  |               | $ | 0.53         |  | $             | 0.39  |  | $ | 0.75 
|                                        |  |                  |       |               |   |              |  |               |       |  |   |      
|Diluted                                 |  | $                | 0.57  |               | $ | 0.52         |  | $             | 0.38  |  | $ | 0.74 
|                                        |  |                  |       |               |   |              |  |               |       |  |   |      
|                                        | 
|                                        |  | Fiscal Year 2007
|                                        |  | FirstQuarter     |       | SecondQuarter |   | ThirdQuarter |  | FourthQuarter
|(in millions, except per share amounts) |  |                  |       |               |   |              |  |               |       |  |   |      
|Sales                                   |  | $                | 218.0 |               | $ | 229.9        |  | $             | 227.1 |  | $ | 245.6
|                                        |  |                  |       |               |   |              |  |               |       |  |   |      
|Gross profit                            |  | $                | 99.7  |               | $ | 105.5        |  | $             | 101.9 |  | $ | 108.4
|                                        |  |                  |       |               |   |              |  |               |       |  |   |      
|Net earnings                            |  | $                | 15.4  |               | $ | 16.3         |  | $             | 14.5  |  | $ | 17.4 
|                                        |  |                  |       |               |   |              |  |               |       |  |   |      
|Net earnings per share                  |  |                  |       |               |   |              |  |               |       |  |   |      
|Basic                                   |  | $                | 0.50  |               | $ | 0.54         |  | $             | 0.48  |  | $ | 0.57 
|                                        |  |                  |       |               |   |              |  |               |       |  |   |      
|Diluted                                 |  | $                | 0.49  |               | $ | 0.53         |  | $             | 0.47  |  | $ | 0.56 
|                                        |  |                  |       |               |   |              |  |               |       |  |   |      



Net earnings per share
for the four quarters of each fiscal year may not sum to the total for the fiscal year because of the different number of shares outstanding during each period.



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EXHIBIT INDEX



|           |  |                                                                                                                                                                            |  |                           |  |                   |  |                  |  |              
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ----------------- |  | ---------------- |  | -------------
|           |  |                                                                                                                                                                            |  | Incorporated by Reference |  |                  
|ExhibitNo. |  | Exhibit Description                                                                                                                                                        |  | Form                      |  | Date Filed        |  | ExhibitNumber(s) |  | FiledHerewith
|2.1        |  | Amended and Restated Distribution Agreement, dated as of January 14, 1999, among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc. |  | 10-Q                      |  | May 17, 1999      |  | 2.1              |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|3.1        |  | Restated Certificate of Incorporation of Varian, Inc.                                                                                                                      |  | 10-Q                      |  | May 17, 1999      |  | 3.1, 3.2         |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|3.2        |  | By-Laws of Varian, Inc.                                                                                                                                                    |  | 10-Q                      |  | May 17, 1999      |  | 3.3              |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|4.1        |  | Specimen Common Stock Certificate.                                                                                                                                         |  | 10/A                      |  | March 8, 1999     |  | 4.1              |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|4.2        |  | Rights Agreement, dated as of February 18, 1999, between Varian, Inc. and First Chicago Trust Company of New York.                                                         |  | 10/A                      |  | March 8, 1999     |  | 4.2              |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|4.3        |  | First Amendment to Rights Agreement, dated as of November 2, 2001, between Varian, Inc. and First Chicago Trust Company of New York.                                       |  | 8-A/A                     |  | November 21, 2001 |  | 2                |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|4.4        |  | Second Amendment to Rights Agreement, dated as of May 12, 2004, between Varian, Inc. and EquiServe Trust Company, N.A.                                                     |  | 10-Q                      |  | May 17, 2004      |  | 4.4              |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|10.1       |  | Intellectual Property Agreement, dated as of April 2, 1999, among Varian Associates, Inc., Varian Semiconductor Equipment Associates, Inc. and Varian, Inc.                |  | 10-Q                      |  | May 17, 1999      |  | 10.2             |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|10.2       |  | Varian, Inc. Amended and Restated Note Purchase and Private Shelf Agreement and Assumption dated as of April 2, 1999.                                                      |  | 10-Q                      |  | May 17, 1999      |  | 10.6             |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|10.3       |  | Asset Purchase Agreement, dated as of February 4, 2005, between Varian, Inc. and Jabil Circuit, Inc.                                                                       |  | 8-K                       |  | March 17, 2005    |  | 2.1              |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|10.4       |  | Form of Indemnity Agreement between Varian, Inc. and its Directors and Officers.                                                                                           |  | 10-K                      |  | December 9, 2004  |  | 10.5             |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|10.5*      |  | Varian, Inc. Omnibus Stock Plan, as amended and restated as of November 8, 2007.                                                                                           |  | 8-K                       |  | February 1, 2008  |  | 10.1             |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|10.6*      |  | Varian, Inc. Management Incentive Plan, as amended and restated as of November 8, 2007.                                                                                    |  | 8-K                       |  | November 13, 2007 |  | 10.9             |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|10.7*      |  | Varian, Inc. Supplemental Retirement Plan, as amended and restated effective November 13, 2008.                                                                            |  |                           |  |                   |  |                  |  | X            
|           |  |                                                                                                                                                                            |  |                           | 
|10.8*      |  | Varian, Inc. Employee Stock Purchase Plan.                                                                                                                                 |  | 10-Q                      |  | May 10, 2000      |  | 10.1             |  |              
|           |  |                                                                                                                                                                            |  |                           | 
|10.9*      |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Executive Officers (used beginning April 2, 1999 and prior to November 10, 2003).                     |  | 10-K                      |  | December 7, 2006  |  | 10.9             |  |              



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##### Table of Contents

|           |  |                                                                                                                                                                 |  |                           |  |                    |  |                  |  |              
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ------------------ |  | ---------------- |  | -------------
|           |  |                                                                                                                                                                 |  | Incorporated by Reference |  |                   
|ExhibitNo. |  | Exhibit Description                                                                                                                                             |  | Form                      |  | Date Filed         |  | ExhibitNumber(s) |  | FiledHerewith
|10.10*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Executive Officers (used beginning November 10, 2003 and prior to November 11, 2004).      |  | 10-K                      |  | December 7, 2006   |  | 10.10            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.11*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Executive Officers (used beginning November 11, 2004 and prior to December 4, 2006).       |  | 10-K                      |  | December 7, 2006   |  | 10.11            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.12*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Executive Officers (used beginning December 4, 2006 and prior to November 8, 2007).        |  | 10-K                      |  | December 7, 2006   |  | 10.12            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.13*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Executive Officers (used beginning November 8, 2007).                                      |  | 8-K                       |  | November 13, 2007  |  | 10.3             |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.14*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Non-Employee Directors.                                                                    |  | 10-K                      |  | December 9, 2004   |  | 10.12            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.15*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Non-Employee DirectorsFor New Director/Chairman Grants (used beginning February 1, 2008). |  | 10-Q                      |  | May 6, 2008        |  | 10.29            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.16*     |  | Form of Nonqualified Stock Option Agreement between Varian, Inc. and Non-Employee DirectorsFor Annual Director Grants (used beginning February 1, 2008).       |  | 10-Q                      |  | May 6, 2008        |  | 10.30            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.17*     |  | Form of Restricted Stock Agreement between Varian, Inc. and Executive Officers (used prior to December 4, 2006).                                                |  | 10-K                      |  | December 7, 2006   |  | 10.14            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.18*     |  | Form of Restricted Stock Agreement between Varian, Inc. and Executive Officers (used beginning December 4, 2006 and prior to November 8, 2007).                 |  | 10-K                      |  | December 7, 2006   |  | 10.15            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.19*     |  | Form of Restricted Stock Agreement between Varian, Inc. and Executive Officers (used beginning November 8, 2007).                                               |  | 10-Q                      |  | February 5, 2008   |  | 10.17            |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.20*     |  | Form of Performance Share Agreement between Varian, Inc. and Executive Officers (used beginning November 8, 2007).                                              |  | 8-K                       |  | November 13, 2007  |  | 10.1             |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.21*     |  | Form of Performance Share Agreement between Varian, Inc. and Executive Officers (used beginning October 6, 2008).                                               |  | 8-K                       |  | September 15, 2008 |  | 10.2             |  |              
|           |  |                                                                                                                                                                 |  |                           | 
|10.22*     |  | Form of Stock Unit Agreement between Varian, Inc. and Non-Employee Directors.                                                                                   |  | 10-Q                      |  | February 8, 2005   |  | 10.23            |  |              



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##### Table of Contents

|           |  |                                                                                                                           |  |                           |  |                    |  |                  |  |              
|---------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ------------------ |  | ---------------- |  | -------------
|           |  |                                                                                                                           |  | Incorporated by Reference |  |                   
|ExhibitNo. |  | Exhibit Description                                                                                                       |  | Form                      |  | Date Filed         |  | ExhibitNumber(s) |  | FiledHerewith
|10.23*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and Garry W. Rogerson.  |  | 8-K                       |  | November 13, 2007  |  | 10.4             |  |              
|           |  |                                                                                                                           |  |                           | 
|10.24*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and G. Edward McClammy. |  | 8-K                       |  | November 13, 2007  |  | 10.5             |  |              
|           |  |                                                                                                                           |  |                           | 
|10.25*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and Martin ODonoghue.  |  | 8-K                       |  | November 13, 2007  |  | 10.6             |  |              
|           |  |                                                                                                                           |  |                           | 
|10.26*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and Sergio Piras.       |  | 8-K                       |  | November 13, 2007  |  | 10.7             |  |              
|           |  |                                                                                                                           |  |                           | 
|10.27*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and Arthur W. Homan.    |  | 8-K                       |  | November 13, 2007  |  | 10.8             |  |              
|           |  |                                                                                                                           |  |                           | 
|10.28*     |  | Change in Control Agreement, as amended and restated as of November 8, 2007, between Varian, Inc. and Sean M. Wirtjes.    |  | 10-K                      |  | November 21, 2007  |  | 10.25            |  |              
|           |  |                                                                                                                           |  |                           | 
|10.29*     |  | Change in Control Agreement, dated as of September 15, 2008, between Varian, Inc. and Robert W. Dean II.                  |  | 8-K                       |  | September 15, 2008 |  | 10.1             |  |              
|           |  |                                                                                                                           |  |                           | 
|10.30*     |  | Change in Control Agreement, dated as of October 6, 2008, between Varian, Inc. and Gordon B. Tredger.                     |  |                           |  |                    |  |                  |  | X            
|           |  |                                                                                                                           |  |                           | 
|10.31*     |  | Description of Compensatory Arrangements between Varian, Inc. and Non-Employee Directors.                                 |  | 8-K                       |  | February 1, 2008   |  | 10.26            |  |              
|           |  |                                                                                                                           |  |                           | 
|10.32*     |  | Description of Certain Compensatory Arrangements between Varian, Inc. and Executive Officers.                             |  | 10-K                      |  | November 21, 2007  |  | 10.27            |  |              
|           |  |                                                                                                                           |  |                           | 
|10.33*     |  | Description of Certain Compensatory Arrangements between Varian S.p.A. and Sergio Piras.                                  |  | 10-Q                      |  | February 5, 2008   |  | 10.28            |  |              
|           |  |                                                                                                                           |  |                           | 
|18.1       |  | Preferability letter regarding inventory accounting principle change.                                                     |  | 10-K                      |  | December 7, 2000   |  | 18.1             |  |              
|           |  |                                                                                                                           |  |                           | 
|21         |  | Subsidiaries of the Registrant.                                                                                           |  |                           |  |                    |  |                  |  | X            
|           |  |                                                                                                                           |  |                           | 
|23         |  | Consent of Independent Registered Public Accounting Firm.                                                                 |  |                           |  |                    |  |                  |  | X            
|           |  |                                                                                                                           |  |                           | 
|31.1       |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                       |  |                           |  |                    |  |                  |  | X            
|           |  |                                                                                                                           |  |                           | 
|31.2       |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                       |  |                           |  |                    |  |                  |  | X            



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##### Table of Contents

|           |  |                                                                                                     |  |                           |  |            |  |                  |  |              
|---------- |  | --------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ---------- |  | ---------------- |  | -------------
|           |  |                                                                                                     |  | Incorporated by Reference |  |           
|ExhibitNo. |  | Exhibit Description                                                                                 |  | Form                      |  | Date Filed |  | ExhibitNumber(s) |  | FiledHerewith
|32.1       |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |                           |  |            |  |                  |  |              
|           |  |                                                                                                     |  |                           | 
|32.2       |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |                           |  |            |  |                  |  |              



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