10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended July 2, 2004

OR

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

For the transition period from                      to                     

Commission File Number 000-25393

VARIAN, INC.

(Exact Name of Registrant as Specified in its Charter)

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

(650) 213-8000

(Telephone Number)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

The number of shares of the registrant’s common stock outstanding as of August 6, 2004 was 34,703,652.

VARIAN, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JULY 2, 2004

TABLE OF CONTENTS

		Page
PART I	Financial Information
Item 1.	Financial Statements:
	Unaudited Condensed Consolidated Statement of Earnings	3
	Unaudited Condensed Consolidated Balance Sheet	4
	Unaudited Condensed Consolidated Statement of Cash Flows	5
	Notes to the Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	37
PART II	Other Information
Item 2.	Changes in Securities, Use of Proceeds, and Issuer Purchase of Equity Securities	38
Item 6.	Exhibits and Reports on Form 8-K	38

2

PART I

FINANCIAL INFORMATION

Item 1.    Financial Statements

VARIAN, INC. AND SUBSIDIARY COMPANIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

(In thousands, except per share amounts)

	Fiscal Quarter Ended						Nine Months Ended
	July 2, 2004			June 27, 2003			July 2, 2004			June 27, 2003
Sales	$	236,680		$	208,734		$	681,918		$	609,091
Cost of sales		147,381			130,773			424,406			376,456
Gross profit		89,299			77,961			257,512			232,635
Operating expenses
Sales and marketing		39,591			36,153			117,393			104,328
Research and development		12,522			12,066			36,326			34,028
General and administrative		13,692			13,037			36,939			36,051
Total operating expenses		65,805			61,256			190,658			174,407
Operating earnings		23,494			16,705			66,854			58,228
Interest income (expense)
Interest income		747			413			2,115			1,057
Interest expense		(601	)		(624	)		(1,817	)		(1,888	)
Total interest income (expense), net		146			(211	)		298			(831	)
Earnings before income taxes		23,640			16,494			67,152			57,397
Income tax expense		8,274			5,773			23,503			20,089
Net earnings	$	15,366		$	10,721		$	43,649		$	37,308
Net earnings per share:
Basic	$	0.44		$	0.32		$	1.26		$	1.10
Diluted	$	0.43		$	0.31		$	1.22		$	1.07
Shares used in per share calculations:
Basic		34,675			33,886			34,587			33,876
Diluted		35,794			35,048			35,798			35,000

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

3

VARIAN, INC. AND SUBSIDIARY COMPANIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands, except par value amounts)

	July 2, 2004		October 3, 2003
ASSETS
Current assets
Cash and cash equivalents	$	175,895	$	135,791
Accounts receivable, net		171,381		165,049
Inventories		142,976		125,649
Deferred taxes		28,565		26,464
Other current assets		21,352		17,788
Total current assets		540,169		470,741
Property, plant, and equipment, net		120,840		120,088
Goodwill		127,487		126,411
Intangible assets, net		15,043		16,762
Other assets		4,020		3,050
Total assets	$	807,559	$	737,052
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Notes payable	$	1,823	$	—
Current portion of long-term debt		6,553		2,811
Accounts payable		72,728		61,209
Deferred profit		10,750		14,385
Accrued liabilities		155,094		141,938
Total current liabilities		246,948		220,343
Long-term debt		30,000		36,273
Deferred taxes		13,355		12,454
Other liabilities		10,444		10,413
Total liabilities		300,747		279,483
Commitments and contingencies (Notes 9, 10, and 12)
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—34,846 shares at July 2, 2004 and 34,181 shares at October 3, 2003		252,572		252,630
Retained earnings		237,215		193,566
Accumulated other comprehensive income		17,025		11,373
Total stockholders’ equity		506,812		457,569
Total liabilities and stockholders’ equity	$	807,559	$	737,052

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

4

VARIAN, INC. AND SUBSIDIARY COMPANIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

	Nine Months Ended
	July 2, 2004			June 27, 2003
Cash flows from operating activities
Net earnings	$	43,649		$	37,308
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		18,945			17,432
Loss (gain) on disposition of property, plant, and equipment		22			(124	)
Tax benefit from stock option exercises		3,716			1,352
Deferred taxes		(1,152	)		2,865
Changes in assets and liabilities, excluding effects of acquisitions:
Accounts receivable, net		(3,107	)		14,086
Inventories		(16,301	)		(7,855	)
Other current assets		(2,703	)		2,585
Other assets		(40	)		254
Accounts payable		11,230			5,318
Deferred profit		(3,637	)		(4,413	)
Accrued liabilities		12,393			14,827
Other liabilities		(493	)		576
Net cash provided by operating activities		62,522			84,211
Cash flows from investing activities
Proceeds from sale of property, plant, and equipment		1,219			473
Purchase of property, plant, and equipment		(17,306	)		(15,561	)
Purchase of businesses, net of cash acquired		(1,070	)		(23,586	)
Private company equity investments		(1,318	)		—
Net cash used in investing activities		(18,475	)		(38,674	)
Cash flows from financing activities
Repayment of debt		(2,815	)		(3,082	)
Issuance of debt		2,037			3,198
Repurchase of common stock		(23,895	)		(10,368	)
Issuance of common stock		20,121			5,600
Transfers to Varian Medical Systems, Inc.		(894	)		(739	)
Net cash used in financing activities		(5,446	)		(5,391	)
Effects of exchange rate changes on cash and cash equivalents		1,503			5,847
Net increase in cash and cash equivalents		40,104			45,993
Cash and cash equivalents at beginning of period		135,791			65,145
Cash and cash equivalents at end of period	$	175,895		$	111,138
Supplemental cash flow information
Income taxes paid, net of refunds received	$	10,679		$	7,336
Interest paid	$	1,768		$	1,892

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

5

VARIAN, INC. AND SUBSIDIARY COMPANIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Unaudited Interim Condensed Consolidated Financial Statements

These unaudited interim condensed consolidated financial statements of Varian, Inc. and its subsidiary companies (collectively, the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The October 3, 2003 balance sheet data was derived from audited financial statements, but does not include all disclosures required in audited financial statements by GAAP. These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 3, 2003 filed with the SEC. In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements include all normal recurring adjustments necessary to present fairly the information required to be set forth therein. The results of operations for the fiscal quarter and nine months ended July 2, 2004 are not necessarily indicative of the results to be expected for a full year or for any other periods.

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

Note 2.    Description of Business and Basis of Presentation

The Company is a major supplier of scientific instruments and consumable laboratory supplies, vacuum products and services, and contract electronics manufacturing services. These businesses primarily serve life science, industrial, academic, and research customers. Until April 2, 1999, the business of the Company was operated as the Instruments Business (“IB”) 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”). At the same time, VAI retained its Health Care Systems business and changed its name to Varian Medical Systems, Inc. (“VMS”).

Note 3.    Summary of Significant Accounting Policies

Fiscal Periods. The Company’s fiscal years reported are the 52- or 53-week periods ending on the Friday nearest September 30. Fiscal year 2004 will comprise the 52-week period ending October 1, 2004, and fiscal year 2003 was comprised of the 53-week period ended October 3, 2003. The fiscal quarters and nine-month periods ended July 2, 2004 and June 27, 2003 each comprised 13 weeks and 39 weeks, respectively.

Stock-Based Compensation. The Company has adopted the pro forma disclosure provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. (“SFAS”) 123, Accounting for Stock-Based Compensation, as amended by SFAS 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123. Accordingly, the Company applies the intrinsic value method as prescribed by Accounting Principles Board Opinion No. (“APB”) 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its employee stock compensation plans.

6

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

If the Company had elected to recognize compensation cost based on the fair value of options granted under its Omnibus Stock Plan and shares issued under its Employee Stock Purchase Plan (“ESPP”) as prescribed by SFAS 123, net earnings and net earnings per share would have been reduced to the pro forma amounts shown below:

	Fiscal Quarter Ended						Nine Months Ended
	July 2, 2004			June 27, 2003			July 2, 2004			June 27, 2003
(in thousands, except per share amounts)
Net earnings:
As reported	$	15,366		$	10,721		$	43,649		$	37,308
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects		(1,493	)		(1,915	)		(4,566	)		(5,820	)
Pro forma	$	13,873		$	8,806		$	39,083		$	31,488
Net earnings per share:
Basic – as reported	$	0.44		$	0.32		$	1.26		$	1.10
Basic – pro forma	$	0.40		$	0.26		$	1.13		$	0.93
Diluted – as reported	$	0.43		$	0.31		$	1.22		$	1.07
Diluted – pro forma	$	0.39		$	0.25		$	1.09		$	0.90

The presentation of pro forma net earnings and net earnings per share does not include the effects of options granted prior to April 2, 1999 and, accordingly, is not necessarily representative of future pro forma calculations.

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

	Fiscal Quarter Ended					Nine Months Ended
	July 2, 2004			June 27, 2003		July 2, 2004		June 27, 2003
(in thousands)
Net earnings	$	15,366		$	10,721	$	43,649	$	37,308
Other comprehensive income:
Currency translation adjustment		(7,500	)		15,031		5,652		26,311
Cash flow hedge fair value adjustments		—			134		—		231
Total other comprehensive income		(7,500	)		15,165		5,652		26,542
Total comprehensive income	$	7,866		$	25,886	$	49,301	$	63,850

Note 4.    Balance Sheet Detail

	July 2, 2004		October 3, 2003
(In thousands)
Inventories
Raw materials and parts	$	74,815	$	62,809
Work in process		14,800		12,539
Finished goods		53,361		50,301
	$	142,976	$	125,649

7

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

Note 5.    Forward Exchange Contracts

The Company enters into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations on assets and liabilities denominated in non-functional currencies. These contracts are accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activities. The Company records these contracts at fair value with the related gains and losses recorded in general and administrative expenses. The gains and losses on these contracts are substantially offset by transaction losses and gains on the underlying balance being hedged.

From time to time, the Company also enters into foreign exchange forward contracts to minimize the impact of foreign currency fluctuations on forecasted transactions. These contracts are designated as cash flow hedges under SFAS 133. At July 2, 2004, there were no outstanding foreign exchange forward contracts designated as cash flow hedges of forecasted transactions. During the nine months ended July 2, 2004, no foreign exchange gains or losses from hedge ineffectiveness were recognized.

The Company’s foreign exchange forward contracts generally range from one to 12 months in original maturity. A summary of all foreign exchange forward contracts that were outstanding as of July 2, 2004 follows:

	Notional Value Sold		Notional Value Purchased
(in thousands)
Euro	$	—	$	46,034
Australian dollar		—		14,370
Japanese yen		8,686		—
British pound		—		4,878
Canadian dollar		4,087		—
Swedish krona		1,124		—
	$	13,897	$	65,282

Note 6.    Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for each of the Company’s reporting segments in the first nine months of fiscal year 2004 were as follows:

	Scientific Instruments		Vacuum Technologies		Electronics Manufacturing		Total Company
(in thousands)
Balance as of October 3, 2003	$	123,343	$	966	$	2,102	$	126,411
Contingent payments on prior years’ acquisitions		1,064		—		—		1,064
Other adjustments		12		—		—		12
Balance as of July 2, 2004	$	124,419	$	966	$	2,102	$	127,487

As required by SFAS 142, Goodwill and Other Intangible Assets, the Company performs an annual goodwill impairment assessment during the second quarter of each fiscal year. In the fiscal quarters ended April 2, 2004 and March 28, 2003, the Company completed its annual impairment tests and determined that there was no impairment of goodwill.

8

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

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

	July 2, 2004
	Gross		Accumulated Amortization			Net
(in thousands)
Intangible assets
Existing technology	$	6,972	$	(2,744	)	$	4,228
Patents and core technology		4,572		(947	)		3,625
Trade names and trademarks		2,176		(588	)		1,588
Customer lists		5,905		(1,541	)		4,364
Other		2,434		(1,196	)		1,238
	$	22,059	$	(7,016	)	$	15,043
	October 3, 2003
	Gross		Accumulated Amortization			Net
(in thousands)
Intangible assets
Existing technology	$	6,972	$	(2,075	)	$	4,897
Patents and core technology		4,572		(632	)		3,940
Trade names and trademarks		2,176		(389	)		1,787
Customer lists		5,905		(861	)		5,044
Other		2,023		(929	)		1,094
	$	21,648	$	(4,886	)	$	16,762

Amortization expense relating to intangible assets was $0.7 million and $0.8 million during the fiscal quarters ended July 2, 2004 and June 27, 2003, respectively, and $2.1 million and $1.8 million during the nine months ended July 2, 2004 and June 27, 2003, respectively. At July 2, 2004, estimated amortization expense for the remainder of fiscal 2004 and for each of the five succeeding fiscal years is as follows:

	Estimated Amortization Expense
(in thousands)
Three months ending October 1, 2004	$	696
Fiscal year 2005	$	2,791
Fiscal year 2006	$	2,444
Fiscal year 2007	$	2,361
Fiscal year 2008	$	2,357
Fiscal year 2009	$	1,567

9

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

Note 7.    Restructuring Activities

During fiscal year 2003, the Company undertook certain restructuring actions to improve efficiency and more closely align employee skill sets and other resources with the Company’s evolving product mix as a result of the Company’s continued emphasis on information rich detection. In addition, actions were undertaken to create a more efficient consumable products operation. These actions primarily impact the Scientific Instruments segment and involve the termination of approximately 160 employees principally in the Company’s sales and marketing, administration, service, and manufacturing functions, the closure of three sales offices, and the consolidation of three consumable products factories into one in Southern California. Substantially all of these activities were completed during fiscal year 2003 except for the termination of approximately 20 employees, which took place in the second and third quarters of fiscal year 2004, and the Southern California facility consolidation, which was initiated in the third quarter of fiscal year 2003 and is currently expected to be completed in the fourth quarter of fiscal year 2004. Costs relating to restructuring activities recorded through the third quarter of fiscal year 2004 were included in general and administrative expenses.

The following tables set forth changes in the Company’s liability relating to the foregoing restructuring activities during the first, second and third quarters of fiscal years 2003 and 2004:

	Fiscal Year 2003
	Employee- Related			Facilities- Related			Total
(in thousands)
Balance at September 27, 2002	$	—		$	392		$	392
Charges to expense		1,482			550			2,032
Cash payments		(772	)		(27	)		(799	)
Foreign currency impacts and other adjustments		(8	)		(20	)		(28	)
Balance at December 27, 2002		702			895			1,597
Charges to expense		—			—			—
Cash payments		(688	)		—			(688	)
Foreign currency impacts and other adjustments		80			15			95
Balance at March 28, 2003		94			910			1,004
Charges to expense		1,002			101			1,103
Cash payments		(584	)		(139	)		(723	)
Foreign currency impacts and other adjustments		(16	)		(96	)		(112	)
Balance at June 27, 2003	$	496		$	776		$	1,272

10

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

	Fiscal Year 2004
	Employee- Related			Facilities- Related			Total
(in thousands)
Balance at October 3, 2003	$	1,172		$	1,197		$	2,369
Charges to expense		83			78			161
Cash payments		(805	)		(127	)		(932	)
Foreign currency impacts and other adjustments		152			34			186
Balance at January 2, 2004		602			1,182			1,784
Charges to expense		281			116			397
Cash payments		(337	)		(123	)		(460	)
Foreign currency impacts and other adjustments		4			26			30
Balance at April 2, 2004		550			1,201			1,751
Charges to expense		163			—			163
Cash payments		(327	)		(82	)		(409	)
Foreign currency impacts and other adjustments		(6	)		—			(6	)
Balance at July 2, 2004	$	380		$	1,119		$	1,499

The Company expects to settle substantially all employee-related balances by the end of fiscal year 2004. Facilities-related payments are expected to run through fiscal year 2010. The non-cash portion of restructuring costs recorded by the Company in connection with these restructuring actions was not significant, either in the aggregate or for any single period.

In addition to the foregoing restructuring costs, the Company incurred approximately $1.5 million in other costs relating directly to the Southern California facility consolidation during the third quarter of fiscal year 2004. These costs included approximately $1.0 million of non-cash charges for accelerated depreciation of assets to be disposed of upon the closure of facilities, approximately $0.2 million in facility relocation costs, and approximately $0.3 million in employee retention and relocation costs.

The Company currently anticipates that general and administrative expenses for the fourth quarter of fiscal year 2004 will include approximately $0.5 million in pretax restructuring costs and approximately $1.4 million in other related costs in connection with the Southern California facility consolidation. Of the $1.4 million in other related costs, approximately $1.0 million represents anticipated non-cash charges for accelerated depreciation of assets to be disposed.

Note 8.    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 include dilution from potential shares of common stock issuable pursuant to the exercise of outstanding stock options determined using the treasury stock method.

For the fiscal quarters ended July 2, 2004 and June 27, 2003, options to purchase approximately 43,000 and 701,000 shares, respectively, were excluded from the calculation of diluted earnings per share as their effect was anti-dilutive. For the nine months ended July 2, 2004 and June 27, 2003, options to purchase approximately 56,000 and 1,111,000 shares, respectively, were excluded from the calculation of diluted earnings per share as their effect was anti-dilutive.

11

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

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

	Fiscal Quarter Ended		Nine Months Ended
	July 2,   2004	June 27,   2003	July 2,   2004	June 27,   2003
(in thousands)
Weighted-average basic shares outstanding	34,675	33,886	34,587	33,876
Net effect of dilutive stock options	1,119	1,162	1,211	1,124
Weighted-average diluted shares outstanding	35,794	35,048	35,798	35,000

Note 9.    Debt and Credit Facilities

Credit Facilities. During fiscal year 2002, the Company established a three-year unsecured revolving bank credit facility in the amount of $50.0 million for working capital purposes. No amounts were outstanding under this credit facility as of July 2, 2004. Borrowings under this credit facility bear interest at rates of LIBOR plus 1.25% to 2.0% depending on certain financial ratios of the Company at the time of borrowing. This credit facility contains certain customary covenants that limit future borrowings and require the Company to maintain certain levels of financial performance. The Company was in compliance with all such covenants and requirements at July 2, 2004. During the second quarter of fiscal 2004, the Company determined that its current liquidity position and the short remaining term of the credit facility no longer justified the cost of maintaining the facility. As a result, the facility was terminated in January 2004. Costs incurred in connection with the termination of this facility were not significant and were expensed during the second quarter of fiscal year 2004.

During fiscal year 2003, the Company established a short-term bank credit facility in Japan in the amount of 300 million yen (approximately $2.7 million at July 2, 2004). The credit facility is available to the Company’s wholly owned Japanese subsidiary for working capital purposes. As of July 2, 2004, an aggregate of 200 million yen (approximately $1.8 million) was outstanding under this credit facility at an annual interest rate of 0.8%, and 100 million yen (approximately $0.9 million) was available for future borrowing. All borrowings outstanding under this credit facility are included in notes payable. This credit facility contains certain covenants that limit future borrowings from this facility, with which the Company was in compliance at July 2, 2004.

In addition to these bank credit facilities, as of July 2, 2004, the Company and its subsidiaries had a total of $74.6 million in other uncommitted and unsecured credit facilities for working capital purposes with interest rates to be established at the time of borrowing. No borrowings were outstanding under these credit facilities as of July 2, 2004. All of these credit facilities contain certain customary conditions and events of default, with which the Company was in compliance at July 2, 2004. Of the $74.6 million in uncommitted and unsecured credit facilities, a total of $40.2 million was limited for use by, or in favor of, certain subsidiaries at July 2, 2004, and a total of $17.5 million of this $40.2 million was being utilized in the form of bank guarantees or short-term standby letters of credit. These guarantees and letters of credit related primarily to advance payments or deposits made to the Company’s subsidiaries by customers for which separate liabilities were recorded in the unaudited condensed consolidated financial statements at July 2, 2004. No amounts had been drawn by beneficiaries under these or any other outstanding guarantees or letters of credit as of that date.

12

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

Long-term Debt. As of July 2, 2004, the Company had $32.5 million in term loans outstanding compared to $35.0 million at October 3, 2003. As of both July 2, 2004 and October 3, 2003, fixed interest rates on the term loans ranged from 6.7% to 7.2%. The weighted-average interest rate on the term loans was 6.8% at both July 2, 2004 and October 3, 2003. The term loans contain certain covenants that limit future borrowings and the payment of cash dividends and require the maintenance of certain levels of working capital and operating results. The Company was in compliance with all restrictive covenants of the term loan agreements at July 2, 2004. The Company also had other long-term notes payable of $4.1 million as of July 2, 2004 with a weighted-average interest rate of 0.0% and $4.1 million as of October 3, 2003 with a weighted-average interest rate of 0.1%.

The following table summarizes future principal payments on borrowings under long-term debt outstanding as of July 2, 2004:

	Three Months Ending Oct. 1, 2004		Fiscal Years												Total
			2005		2006		2007		2008		2009		Thereafter
(in thousands)
Long-term debt (including current portion)	$	—	$	6,553	$	2,500	$	2,500	$	6,250	$	—	$	18,750	$	36,553

Note 10.    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 the nine months ended July 2, 2004 and June 27, 2003 follow:

	Nine Months Ended
	July 2, 2004			June 27, 2003
(in thousands)
Beginning balance	$	10,261		$	9,029
Charges to costs and expenses		5,649			4,283
Warranty expenditures		(5,312	)		(3,938	)
Ending balance	$	10,598		$	9,374

Indemnification Obligations. In November 2002, the FASB issued Interpretation No. (“FIN”) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires a guarantor to recognize a liability for and/or disclose obligations it has undertaken in relation to the issuance of the guarantee. In June 2003, the FASB issued guidance clarifying certain provisions within FIN 45. Under this guidance, arrangements involving indemnification clauses are subject to the disclosure requirements of FIN 45 only.

13

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

The Company is subject to certain indemnification obligations to VMS (formerly VAI) and VSEA in connection with the IB as conducted by VAI prior to the Distribution. 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. The agreements containing these indemnification obligations are disclosed as exhibits to this Quarterly Report on Form 10-Q or the Company’s Annual Report on Form 10-K. The estimated fair value of these indemnities 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, 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 the By-Laws and the indemnity agreements. 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 be reasonably estimated. Historically, the Company has not made payments related to these indemnities and the estimated fair value of these indemnities 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 combinations of loss, expense, 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 state of Company-owned 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. To date, 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 11.    Stock Repurchase Program

During fiscal year 2002, the Company’s Board of Directors authorized the Company to repurchase up to 1,000,000 shares of its common stock until October 1, 2004. There were no shares repurchased under this authorization during the fiscal quarter ended July 2, 2004. During the nine months ended July 2, 2004, the Company repurchased and retired 588,952 shares under this authorization at an aggregate cost of $23.9 million. As of July 2, 2004, the Company had remaining authorization for future repurchases of 7,897 shares.

On May 11, 2004, the Company’s Board of Directors authorized the Company to repurchase up to an additional 1,000,000 shares of its common stock until September 30, 2007. As of July 2, 2004, no shares had been repurchased under this authorization.

14

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

Note 12.    Contingencies

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

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

For certain of these sites and facilities, various uncertainties make it difficult to assess the likelihood and scope of further environmental-related activities or to estimate the future costs of such activities if undertaken. As of July 2, 2004, it was nonetheless estimated that the Company’s share of the future exposure for environmental-related costs for these sites and facilities ranged in the aggregate from $1.4 million to $2.3 million (without discounting to present value). The time frame over which these costs are expected to be incurred varies with each site and facility, ranging up to approximately 30 years as of July 2, 2004. No amount in the foregoing range of estimated future costs is believed to be more probable of being incurred than any other amount in such range, and the Company therefore had an accrual of $1.4 million as of July 2, 2004.

As to certain sites and facilities, sufficient knowledge has been gained to be able to better estimate the scope and certain costs of future environmental-related activities. As of July 2, 2004, it was estimated that the Company’s share of the future exposure for these environmental-related costs for these sites and facilities ranged in the aggregate from $5.7 million to $12.1 million (without discounting to present value). The time frame over which these costs are expected to be incurred varies with each site and facility, ranging up to approximately 27 years as of July 2, 2004. As to each of these sites and facilities, it was determined that a particular amount within the range of certain estimated costs was a better estimate of the future environmental-related cost than any other amount within the range, and that the amount and timing of these future costs were reliably determinable. Together, the undiscounted amounts for these sites totaled $7.2 million at July 2, 2004. The Company therefore had an accrual of $4.8 million as of July 2, 2004, which represents the best estimate of its share of these future environmental-related costs discounted at 4%, net of inflation. This accrual is in addition to the $1.4 million described in the preceding paragraph.

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

15

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

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 $1.1 million receivable in other assets as of July 2, 2004 for the Company’s share of such recovery. The Company has not reduced any environmental-related liability in anticipation of recoveries from third parties.

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

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.    Defined Benefit Retirement Plans

Net Periodic Pension Cost. The components of net periodic pension cost relating to the Company’s defined benefit retirement plans follow:

	Fiscal Quarter Ended						Nine Months Ended
	July 2,   2004			June 27,   2003			July 2,   2004			June 27,   2003
(in thousands)
Service cost	$	725		$	536		$	2,174		$	1,609
Interest cost		749			642			2,248			1,927
Expected return on plan assets		(711	)		(694	)		(2,134	)		(2,081	)
Amortization of prior service cost and actuarial gains and losses		157			91			470			274
Curtailment gain		(1,284	)		—			(1,284	)		—
Net periodic pension (income) cost	$	(364	)	$	575		$	1,474		$	1,729

During the third quarter of fiscal year 2004, the Company ceased making contributions to its existing defined benefit retirement plan in Australia and commenced contributions to a new defined contribution plan for the benefit of its participants. In connection with this action, the Company recorded a curtailment gain of approximately $1.3 million in the fiscal quarter ended July 2, 2004. The Company currently anticipates that the Australian defined benefit retirement plan will be wound up in the fourth quarter of fiscal year 2004, resulting in a corresponding settlement loss of between $0 and $2.0 million.

Employer Contributions. During the nine months ended July 2, 2004, the Company made contributions totaling $1.5 million to its defined benefit retirement plans. The Company currently anticipates contributing an additional $0.5 million to these plans in the fourth quarter of fiscal year 2004.

16

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

Note 14.    Industry Segments

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

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

	Sales				Pretax Earnings
	Fiscal Quarter Ended				Fiscal Quarter Ended
	July 2, 2004		June 27, 2003		July 2, 2004			June 27, 2003
(in millions)
Scientific Instruments	$	149.2	$	135.3	$	13.4		$	11.5
Vacuum Technologies		34.8		28.5		5.3			2.8
Electronics Manufacturing		52.7		44.9		6.4			5.5
Total industry segments		236.7		208.7		25.1			19.8
General corporate		—		—		(1.6	)		(3.1	)
Interest income		—		—		0.7			0.4
Interest expense		—		—		(0.6	)		(0.6	)
Total	$	236.7	$	208.7	$	23.6		$	16.5
	Sales				Pretax Earnings
	Nine Months Ended				Nine Months Ended
	July 2, 2004		June 27, 2003		July 2, 2004			June 27, 2003
(in millions)
Scientific Instruments	$	433.3	$	395.2	$	40.3		$	39.1
Vacuum Technologies		104.5		86.1		16.9			10.6
Electronics Manufacturing		144.1		127.8		15.8			15.2
Total industry segments		681.9		609.1		73.0			64.9
General corporate		—		—		(6.1	)		(6.7	)
Interest income		—		—		2.1			1.1
Interest expense		—		—		(1.8	)		(1.9	)
Total	$	681.9	$	609.1	$	67.2		$	57.4

17

VARIAN, INC. AND SUBSIDIARY COMPANIES

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

Note 15.    Recent Accounting Pronouncements

In December 2003, the FASB issued SFAS 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106. As revised, SFAS 132 does not change the measurement or recognition of those plans; rather, it requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit plans and other postretirement benefit plans. The Company adopted the new disclosure requirements of SFAS 132 as revised, which were effective for interim periods beginning after December 15, 2003, in the second quarter of fiscal year 2004.

In December 2003, the SEC issued Staff Accounting Bulletin No. (“SAB”) 104, Revenue Recognition, which supercedes SAB 101, Revenue Recognition in Financial Statements. SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements that was superceded as a result of the issuance of Emerging Issues Task Force Issue No. (“EITF”) 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. Additionally, SAB 104 rescinds the SEC’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers (the “FAQ”) issued with SAB 101 that had been codified in SEC Topic 13, Revenue Recognition. Selected portions of the FAQ have been incorporated into SAB 104. While the wording of SAB 104 differs from SAB 101 to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The Company adopted the provisions of SAB 101 in fiscal year 2001 and the provisions of EITF 00-21 in fiscal year 2003. As a result, the issuance of SAB 104 had no impact on the Company’s revenue recognition policy or its financial condition or results of operations.

In May 2004, the FASB issued FASB Staff Position No. (“FSP”) 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The Act introduced a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of post-retirement health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare Part D benefit. FSP 106-2 is effective for the first interim or annual period beginning after June 15, 2004 and supersedes FSP 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which was issued in January 2004. FSP 106-2 provides authoritative guidance on the accounting for the federal subsidy provided for under the Act and specifies the disclosure requirements for employers who have adopted FSP 106-2, including those who are unable to determine whether benefits provided under its plan are actuarially equivalent to Medicare Part D. The Company is currently evaluating the impact, if any, of the adoption of FSP 106-2 on its financial condition or results of operations and expects to complete this evaluation during the fourth quarter of fiscal year 2004. Therefore, the accompanying unaudited condensed consolidated financial statements do not reflect any possible effects of the adoption of FSP 106-2.

18

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Caution Regarding Forward-Looking Statements

Throughout this Report, and particularly in this Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations, there are forward-looking statements that are based upon our current expectations, estimates, and projections, and that reflect our beliefs and assumptions based upon information available to us at the date of this Report. In some cases, you can identify these statements by words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” and other similar terms.

We caution investors that forward-looking statements are only predictions, based upon our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict. Our actual results, performance, or achievements could differ materially from those expressed or implied by the forward-looking statements. Some of the important factors that could cause our results to differ are discussed in Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors. We encourage you to read that section carefully.

Other risks and uncertainties include, but are not limited to, the following: whether we will succeed in new product development, commercialization, performance, and acceptance, particularly in life science applications; whether we can achieve continued growth in sales in life science applications; risks arising from the timing of shipments, installations, and the recognition of revenues on leading-edge nuclear magnetic resonance (“NMR”) systems; whether we can increase profit margins on newer leading-edge NMR products; the impact of shifting product mix on margins in the Scientific Instruments segment; whether we will see continued demand for vacuum products and for electronics manufacturing services; 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, including magnets for our NMR systems; foreign currency fluctuations that could adversely impact revenue growth and earnings; whether we will see sustained market investment in capital equipment; whether we will see reduced demand from customers that operate in cyclical industries; the impact of delays in government funding for research; the actual cost of anticipated restructuring activities and their impact on future costs; and other risks detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”). You should carefully consider those risks, in addition to the other information in this Report and in our other filings with the SEC, before deciding to invest in our stock or to maintain or change your investment. We disclaim any intent or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise.

19

Results of Operations

Third Quarter of Fiscal Year 2004 Compared to Third Quarter of Fiscal Year 2003

Segment Results

Our operations are grouped into three reportable business segments: Scientific Instruments, Vacuum Technologies, and Electronics Manufacturing. The following table presents comparisons of our sales and operating earnings for each of our segments and in total for the third quarters of fiscal years 2004 and 2003:

	Fiscal Quarter Ended										Increase (Decrease)
	July 2, 2004					June 27, 2003
	$			% of Sales		$			% of Sales		$		%
(dollars in millions)
Sales by Segment:
Scientific Instruments	$	149.2				$	135.3				$	13.9	10.3	%
Vacuum Technologies		34.8					28.5					6.3	21.7
Electronics Manufacturing		52.7					44.9					7.8	17.5
Total company	$	236.7				$	208.7				$	28.0	13.4	%
Operating Earnings by Segment:
Scientific Instruments	$	13.4		8.9	%	$	11.5		8.5	%	$	1.8	16.0	%
Vacuum Technologies		5.3		15.3			2.8		9.8			2.5	90.0
Electronics Manufacturing		6.4		12.2			5.5		12.1			1.0	18.2
Total segments		25.1		10.6			19.8		9.5			5.3	21.3
General corporate		(1.6	)	(0.7	)		(3.1	)	(1.5	)		1.5	(47.7	)
Total company	$	23.5		9.9	%	$	16.7		8.0	%	$	6.8	40.7	%

Scientific Instruments. The increase in Scientific Instruments sales was primarily attributable to higher volume, particularly in Europe. Increased customer demand for our information rich detection products, such as mass spectrometers, drove higher sales volume in both life science and industrial applications.

Scientific Instruments operating earnings for the third quarters of fiscal years 2004 and 2003 reflect pretax restructuring and other related costs of $1.6 million and $0.6 million, respectively (see Restructuring Activities below). Excluding the impact of these restructuring and other related costs, the increase in operating earnings as a percentage of sales resulted primarily from higher gross profit margins, which were positively affected by a mix shift toward higher margin mass spectrometry products and lower costs associated with newer leading-edge products which had an adverse impact in the third quarter of fiscal year 2003. Despite the increase in the third quarter of fiscal year 2004 due to the foregoing factors, Scientific Instruments gross profit margins continued to be adversely effected by a mix shift toward lower margin high-field NMR systems and, to a lesser extent, leading-edge cold probes for NMR, and away from higher margin low-field NMR systems.

Vacuum Technologies. The increase in Vacuum Technologies sales resulted primarily from an increase in the volume of products sold into both life science and industrial uses. Sales were particularly strong into a broad range of industrial applications. In life science applications, sales growth was driven by increased demand for turbomolecular pumps for use in OEM mass spectrometers. The increase in Vacuum Technologies operating earnings as a percentage of sales was primarily attributable to higher gross profit margins due to sales volume leverage and approximately $0.5 million of pretax restructuring costs that were incurred in the third quarter of fiscal year 2003.

20

Electronics Manufacturing. The increase in Electronics Manufacturing sales was primarily due to higher volume from medical equipment and industrial customers. The increase in Electronics Manufacturing operating earnings as a percentage of sales was primarily due to approximately $0.5 million in pretax transition costs incurred in the third quarter of fiscal year 2003 in connection with an acquisition completed in that period. Excluding the impact of these acquisition transition costs, the decrease in operating earnings as a percentage of sales was attributable to higher start-up costs relating to new business from existing customers in the third quarter of fiscal year 2004.

Consolidated Results

The following table presents comparisons of our sales and other selected consolidated financial results for the third quarters of fiscal years 2004 and 2003:

	Fiscal Quarter Ended										Increase (Decrease)
	July 2, 2004					June 27, 2003
	$			% of Sales		$			% of Sales		$			%
(dollars in millions, except per share data)
Sales	$	236.7		100.0	%	$	208.7		100.0	%	$	27.9		13.3	%
Gross profit	$	89.3		37.7		$	78.0		37.3		$	11.3		14.5
Operating expenses:
Sales and marketing		39.6		16.7			36.2		17.3			3.4		9.5
Research and development		12.5		5.3			12.1		5.8			0.4		3.8
General and administrative		13.7		5.8			13.0		6.2			0.7		5.0
Total operating expenses		65.8		27.8			61.3		29.3			4.5		7.4
Operating earnings		23.5		9.9			16.7		8.0			6.8		40.6
Interest income		0.8		0.3			0.4		0.2			0.3		80.9
Interest expense		(0.6	)	(0.2	)		(0.6	)	(0.3	)		—		(3.7	)
Income tax expense		(8.3	)	(3.5	)		(5.8	)	(2.8	)		(2.5	)	43.3
Net earnings	$	15.4		6.5	%	$	10.7		5.1	%	$	4.6		43.3	%
Net earnings per diluted share	$	0.43				$	0.31				$	0.12

Sales. As shown above, sales by the Scientific Instruments, Vacuum Technologies, and Electronics Manufacturing segments increased by 10.3%, 21.7%, and 17.5%, respectively, compared to the prior-year quarter. The improvement in sales was primarily attributable to general economic improvement and continued acceptance of our newer products.

Geographically, sales in North America of $131.9 million, Europe of $72.2 million, and the rest of the world of $32.6 million in the third quarter of fiscal year 2004 represented increases (decreases) of 11.0%, 27.1%, and (1.7%), respectively, compared to the third quarter of fiscal year 2003. All three segments experienced an increase in sales across all major geographic regions that they served except for Scientific Instruments sales into the Pacific Rim, which decreased. The decrease in sales in the Pacific Rim in the third quarter of fiscal year 2004 was primarily due to lower sales of high-field NMR systems into that region as compared to the third quarter of fiscal year 2003. This decrease was partially offset by continued growth in sales of other Scientific Instruments and Vacuum Technologies products into the Pacific Rim and higher Scientific Instruments sales into Latin America. The increase in North America sales was due to higher demand in all three of our segments. The increase in Europe was driven by improved Scientific Instruments and Vacuum Technologies sales volume; in part, this reflects the currency effect of the stronger Euro in the third quarter of fiscal year 2004.

21

Gross Profit. The increase in gross profit percentage resulted from a mix shift toward higher margin mass spectrometry products and application-based consumable products and lower costs associated with newer leading-edge products, which negatively impacted gross profit margins in the third quarter of fiscal year 2003. Higher sales volume leverage in the Vacuum Technologies segment also contributed to the increase. Together, these factors increased the gross profit percentage by between one-half and one percent. The increase due to these factors was partially offset by lower gross profit margins in the Electronics Manufacturing segment due primarily to higher start-up costs relating to new business from existing customers in the third quarter of fiscal year 2004.

Sales and Marketing. The decrease in sales and marketing expenses as a percentage of sales resulted primarily from higher sales volume leverage in the third quarter of fiscal year 2004. The increase in sales and marketing expenses in absolute dollars was due to higher order-based commissions and the weaker U.S. dollar, which increased costs for most of our non-U.S. operations.

Research and Development. Research and development expenses were 5.3% and 5.8% of sales in the third quarters of fiscal years 2004 and 2003, respectively. As a percentage of sales, the higher research and development spending in the third quarter of fiscal year 2003 was due primarily to the timing of new product introductions.

General and Administrative. General and administrative expenses for the third quarter of fiscal year 2004 included approximately $1.6 million in pretax restructuring and other related costs and a pretax gain of approximately $1.3 million relating to the curtailment of a defined benefit pension plan in Australia. In comparison, general and administrative expenses for the third quarter of fiscal year 2003 included approximately $1.1 million in pretax restructuring costs. Excluding the impact of these items, general and administrative expenses were relatively flat as a percentage of sales in the third quarters of fiscal years 2004 and 2003.

Restructuring Activities. During fiscal year 2003, we undertook certain restructuring actions to improve efficiency and more closely align employee skill sets and other resources with our evolving product mix as a result of our continued emphasis on information rich detection. In addition, actions were undertaken to create a more efficient consumable products operation. These actions primarily impacted the Scientific Instruments segment and involved the termination of approximately 160 employees principally in our sales and marketing, administration, service, and manufacturing functions, the closure of three sales offices, and initial steps to consolidate three consumable products factories into one in Southern California. Substantially all of these activities were completed during fiscal year 2003 except for the termination of approximately 20 employees, which took place in the second and third quarters of fiscal year 2004, and the Southern California facility consolidation, which was initiated in the third quarter of fiscal year 2003 and is currently expected to be completed in the fourth quarter of fiscal year 2004. Costs relating to restructuring activities recorded through the third quarter of fiscal year 2004 were included in general and administrative expenses.

The following tables set forth changes in the Company’s liability relating to the foregoing restructuring activities during the third quarters of fiscal years 2003 and 2004:

	Fiscal Quarter Ended June 27, 2003
	Employee- Related			Facilities- Related			Total
(in thousands)
Balance at March 28, 2003	$	94		$	910		$	1,004
Charges to expense		1,002			101			1,103
Cash payments		(584	)		(139	)		(723	)
Foreign currency impacts and other adjustments		(16	)		(96	)		(112	)
Balance at June 27, 2003	$	496		$	776		$	1,272

22

	Fiscal Quarter Ended July 2, 2004
	Employee- Related			Facilities- Related			Total
(in thousands)
Balance at April 2, 2004	$	550		$	1,201		$	1,751
Charges to expense		163			—			163
Cash payments		(327	)		(82	)		(409	)
Foreign currency impacts and other adjustments		(6	)		—			(6	)
Balance at July 2, 2004	$	380		$	1,119		$	1,499

We expect to settle substantially all employee-related balances by the end of fiscal year 2004. Facilities-related payments are expected to run through fiscal year 2010. The non-cash portion of restructuring costs recorded in the third quarters of fiscal years 2003 and 2004 was not significant, either in the aggregate or for any single period presented.

In addition to the foregoing restructuring costs, we incurred approximately $1.5 million in other costs relating directly to the Southern California facility consolidation during the third quarter of fiscal year 2004. These costs included approximately $1.0 million of non-cash charges for accelerated depreciation of assets to be disposed of upon the closure of facilities, approximately $0.2 million in facility relocation costs, and approximately $0.3 million in employee retention and relocation costs.

We currently anticipate that general and administrative expenses for the fourth quarter of fiscal year 2004 will include approximately $0.5 million in pretax restructuring costs and approximately $1.4 million in other related costs in connection with the Southern California facility consolidation. Of the $1.4 million in other related costs, approximately $1.0 million represents anticipated non-cash charges for accelerated depreciation of assets to be disposed.

When they were initiated during fiscal 2003, we estimated that the foregoing restructuring activities would eventually result in a reduction in annual operating expenses of approximately $9 million-$11 million, primarily in selling, general, and administrative expenses and, to a lesser extent, in cost of sales. Some of these cost savings have been and will continue to be reinvested into other parts of our business, for example, as part of our continued emphasis on information rich detection. In addition, unrelated cost increases in other areas of our operations such as corporate compliance costs could offset some of these cost savings. Although it is difficult to quantify with any precision our actual cost savings to date from these still-ongoing activities, we currently believe that the ultimate savings realized will not differ materially from our initial estimate.

Net Earnings. Net earnings for the third quarter of fiscal year 2004 reflect the impact of approximately $1.6 million in pretax restructuring and other related costs and a pretax gain of approximately $1.3 million relating to the curtailment of a defined benefit pension plan in Australia. Net earnings for the third quarter of fiscal year 2003 included approximately $1.1 million in pretax restructuring costs. Excluding the impact of these costs, the increase in net earnings resulted primarily from increased sales in all three of our segments as well as higher gross profit margins.

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With respect to consolidated results for fiscal year 2004, we expect GAAP operating margins to be between 9.3% and 9.7% and GAAP net earnings per diluted share to be between $1.55 and $1.64. These projected GAAP operating margins and GAAP net earnings per diluted share include approximately $3.8 million in anticipated pretax restructuring and other related costs relating to the consolidation of three consumable products factories into one in Southern California, of which approximately $1.9 million was incurred in the first nine months of fiscal year 2004. Of the approximately $1.9 million expected to be incurred in the fourth quarter of fiscal year 2004, approximately $1.0 million relates to anticipated non-cash charges for accelerated depreciation of assets to be disposed. The projected GAAP operating margins and GAAP net earnings per diluted share also include approximately $2.8 million in anticipated pretax intangible asset amortization and the net impact of the curtailment and subsequent settlement of a defined benefit pension plan in Australia. The curtailment of this plan resulted in a pretax gain of approximately $1.3 million in the third quarter of fiscal year 2004, and the settlement of the plan is expected to result in a pretax charge of between $0 and $2.0 million in the fourth quarter of fiscal year 2004.

First Nine Months of Fiscal Year 2004 Compared to First Nine Months of Fiscal Year 2003

Segment Results

The following table presents comparisons of our sales and operating earnings for each of our segments and in total for the first nine months of fiscal years 2004 and 2003:

	Nine Months Ended										Increase (Decrease)
	July 2, 2004					June 27, 2003
	$			% of Sales		$			% of Sales		$		%
(dollars in millions)
Sales by Segment:
Scientific Instruments	$	433.3				$	395.2				$	38.1	9.6	%
Vacuum Technologies		104.5					86.1					18.4	21.4
Electronics Manufacturing		144.1					127.8					16.3	12.8
Total company	$	681.9				$	609.1				$	72.8	12.0	%
Operating Earnings by Segment:
Scientific Instruments	$	40.3		9.3	%	$	39.1		9.9	%	$	1.2	3.1	%
Vacuum Technologies		16.9		16.2			10.6		12.3			6.3	59.2
Electronics Manufacturing		15.8		11.0			15.2		11.9			0.6	4.2
Total segments		73.0		10.7			64.9		10.6			8.1	12.5
General corporate		(6.1	)	(0.9	)		(6.7	)	(1.1	)		0.5	(7.7	)
Total company	$	66.9		9.8	%	$	58.2		9.6	%	$	8.6	14.8	%

Scientific Instruments. The increase in Scientific Instruments sales was primarily attributable to higher volume, particularly in Europe and North America. To a lesser extent, the weaker U.S dollar also contributed to the increase in sales, principally in Europe. General economic improvement and increased customer demand for our newer products drove increased sales in both life science and industrial applications.

Scientific Instruments operating earnings reflect pretax restructuring and other related costs of $2.2 million and $2.2 million in the first nine months of fiscal years 2004 and 2003, respectively (see Restructuring Activities below). Excluding the impact of these restructuring and other related costs, the decrease in operating earnings as a percentage of sales resulted primarily from lower gross profit margins, which were adversely affected by a mix shift toward lower margin high-field NMR systems and leading-edge cold probes for NMR and away from higher margin low-field NMR systems, and by higher sales and marketing costs. Sales and marketing costs were higher as a percentage of sales due to higher order-based commissions and the weaker U.S. dollar, which increased costs for most non-U.S. operations. The decrease in operating earnings as a percentage of sales from these factors was partially offset by stronger sales of higher margin mass spectrometry products.

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Vacuum Technologies. The sales increase in Vacuum Technologies resulted primarily from an increase in the volume of products sold into both life science and industrial applications. In life science applications, sales growth was driven by increased demand for turbomolecular pumps for use in OEM mass spectrometers. Industrial sales growth came from higher demand for pumps for broad industrial uses including semiconductor applications. To a lesser extent, the weaker U.S. dollar also contributed to the increase in sales, particularly in Europe. The increase in Vacuum Technologies operating earnings as a percentage of sales was primarily attributable to higher gross profit margins due to sales volume leverage and approximately $0.5 million of pretax restructuring costs that were incurred in the first nine months of fiscal year 2003, partially offset by higher operating costs outside of the United States due in part to the impact of the weaker U.S. dollar.

Electronics Manufacturing. The increase in Electronics Manufacturing sales was primarily due to higher volume from industrial customers as well as approximately $7.0 million in incremental revenues from new customers obtained through an acquisition completed during the third quarter of fiscal year 2003. The decrease in Electronics Manufacturing operating earnings as a percentage of sales was primarily due to lower gross margins in the first nine months of fiscal year 2004. These lower gross margins were attributable to higher start-up costs relating to new business from existing customers and a mix shift toward some lower margin industrial equipment products in the first nine months of fiscal year 2004, partially offset by the impact of approximately $0.5 million in pretax transition costs associated with the acquisition completed in the first nine months of fiscal year 2003.

Consolidated Results

The following table presents comparisons of our sales and other selected consolidated financial results for the first nine months of fiscal years 2004 and 2003:

	Nine Months Ended										Increase (Decrease)
	July 2, 2004					June 27, 2003
	$			% of Sales		$			% of Sales		$			%
(dollars in millions, except per share data)
Sales	$	681.9		100.0	%	$	609.1		100.0	%	$	72.8		12.0	%
Gross profit	$	257.5		37.8		$	232.6		38.2			24.9		10.7
Operating expenses:
Sales and marketing		117.4		17.2			104.3		17.1			13.1		12.5
Research and development		36.3		5.4			34.0		5.6			2.3		6.8
General and administrative		36.9		5.4			36.1		5.9			0.8		2.5
Total operating expenses		190.6		28.0			174.4		28.6			16.2		9.3
Operating earnings		66.9		9.8			58.2		9.6			8.7		14.8
Interest income		2.1		0.3			1.1		0.1			1.0		100.1
Interest expense		(1.8	)	(0.2	)		(1.9	)	(0.3	)		0.1		(3.8	)
Income tax expense		(23.5	)	(3.5	)		(20.1	)	(3.3	)		(3.4	)	17.0
Net earnings	$	43.7		6.4	%	$	37.3		6.1	%	$	6.4		17.0	%
Net earnings per diluted share	$	1.22				$	1.07				$	0.15

Sales. As shown above, sales by the Scientific Instruments, Vacuum Technologies, and Electronics Manufacturing segments increased by 9.6%, 21.4%, and 12.8%, respectively, compared to the prior-year period. The improvement in sales was primarily attributable to general economic improvement and continued acceptance of our newer products.

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Geographically, sales in North America of $373.6 million, Europe of $204.0 million, and the rest of the world of $104.3 million in the first nine months of fiscal year 2004 represented increases of 12.0%, 17.7%, and 2.1%, respectively, compared to the first nine months of fiscal year 2003. All three segments experienced an increase in sales across all major geographic regions that they served except for Scientific Instruments sales into the Pacific Rim, which decreased. The decrease in sales in the Pacific Rim in the first nine months of fiscal year 2004 was primarily due to lower sales of high-field NMR systems into that region as compared to the first nine months of fiscal year 2003. This decrease was partially offset by continued growth in sales of other Scientific Instruments and Vacuum Technologies products into the Pacific Rim and higher Scientific Instruments sales into Latin America. The increase in North America sales was due to higher demand for products from all three segments. The increase in Europe was driven by improved Scientific Instruments and Vacuum Technologies sales; in part, this reflects the currency effect of the stronger Euro in the first nine months of fiscal year 2004.

Gross Profit. The decrease in gross profit percentage resulted primarily from higher start-up costs relating to new business from existing customers and a mix shift toward some lower margin industrial equipment products in the Electronics Manufacturing segment. These factors reduced the gross profit percentage by almost one-half of one percent. To a lesser extent, stronger sales of Vacuum Technologies products as well as of higher margin mass spectrometry products and application-based consumable products in the Scientific Instruments segment positively impacted the gross profit percentage. However, the positive impact of these factors was offset by the adverse impact of a mix shift toward lower margin high-field NMR systems and NMR cold probes and away from higher margin low-field NMR systems in the first nine months of fiscal year 2004.

Sales and Marketing. Sales and marketing expenses were 17.2% and 17.1% of sales in the first nine months of fiscal years 2004 and 2003, respectively. The increase in sales and marketing expenses in absolute dollars was due primarily to higher sales commissions.

Research and Development. Research and development expenses were 5.4% and 5.6% of sales in the first nine months of fiscal years 2004 and 2003, respectively. As a percentage of sales, the higher research and development spending in the first nine months of fiscal year 2003 was due primarily to the timing of new product introductions.

General and Administrative. General and administrative expenses for the first nine months of fiscal year 2004 included approximately $2.2 million in pretax restructuring and other related costs as well as a pretax gain of approximately $1.3 million relating to the curtailment of a defined benefit pension plan in Australia. In comparison, general and administrative expenses for the first nine months included approximately $3.2 million in pretax restructuring costs. Excluding the impact of these items, general and administrative expenses were relatively flat as a percentage of sales in the first nine months of fiscal years 2004 and 2003.

Restructuring Activities. During fiscal year 2003, we undertook certain restructuring actions to improve efficiency and more closely align employee skill sets and other resources with our evolving product mix as a result of our continued emphasis on information rich detection. In addition, actions were undertaken to create a more efficient consumable products operation. These actions primarily impacted the Scientific Instruments segment and involved the termination of approximately 160 employees principally in our sales and marketing, administration, service, and manufacturing functions, the closure of three sales offices and the consolidation of three consumable products factories into one in Southern California. Substantially all of these activities were completed during fiscal year 2003 except for the termination of approximately 20 employees, which took place in the second and third quarters of fiscal year 2004, and the Southern California facility consolidation, which was initiated in the third quarter of fiscal year 2003 and is currently expected to be completed in the fourth quarter of fiscal year 2004. Costs relating to restructuring activities recorded through the second quarter of fiscal year 2004 were included in general and administrative expenses.

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The following tables set forth changes in the Company’s liability relating to the foregoing restructuring activities during the first nine months of fiscal years 2003 and 2004:

	Nine Months Ended June 27, 2003
	Employee- Related			Facilities- Related			Total
(in thousands)
Balance at September 27, 2002	$	—		$	392		$	392
Charges to expense		2,484			651			3,135
Cash payments		(2,044	)		(166	)		(2,210	)
Foreign currency impacts and other adjustments		56			(101	)		(45	)
Balance at June 27, 2003	$	496		$	776		$	1,272
	Nine Months Ended July 2, 2004
	Employee- Related			Facilities- Related			Total
(in thousands)
Balance at October 3, 2003	$	1,172		$	1,197		$	2,369
Charges to expense		527			194			721
Cash payments		(1,469	)		(332	)		(1,801	)
Foreign currency impacts and other adjustments		150			60			210
Balance at July 2, 2004	$	380		$	1,119		$	1,499

The non-cash portion of restructuring costs recorded in the first nine months of fiscal years 2003 and 2004 was not significant, either in the aggregate or for any single period presented.

During the first nine months of fiscal year 2004, we incurred approximately $1.9 million in other costs relating directly to the Southern California facility consolidation. These costs included approximately $1.0 million of non-cash charges for accelerated depreciation of assets to be disposed of upon the closure of facilities and are in addition to the restructuring costs described above.

Net Earnings. Net earnings for the first nine months of fiscal year 2004 reflect the impact of approximately $2.2 million in pretax restructuring and other related costs and a pretax gain of approximately $1.3 million relating to the curtailment of a defined benefit pension plan in Australia. Net earnings for the first nine months of fiscal year 2003 included approximately $3.2 million in pretax restructuring costs. Excluding the impact of these items, the increase in net earnings resulted primarily from increased sales in all three of our segments.

Liquidity and Capital Resources

We generated $62.5 million of cash from operating activities in the first nine months of fiscal year 2004, which compares to $84.2 million generated in the first nine months of fiscal year 2003. The decrease in cash from operating activities resulted primarily from the relative changes in accounts receivable ($17.2 million) and inventories ($8.4 million), partially offset by the relative change in accounts payable ($5.9 million). Cash usage relating to accounts receivable in the first nine months of fiscal year 2004 of $3.1 million was primarily attributable to higher sales volume. Cash generated from accounts receivable in the first nine months of fiscal year 2003 of $14.1 million was primarily due to a significant improvement in the average number of days accounts receivable were outstanding during the period. The relative increase in inventory during the first nine months of fiscal year 2004 was the result of our need to support higher sales and order volume for our products, which led us to maintain more inventory, and the timing of magnet purchases and deliveries for NMR systems. Inventory turnover for the two periods was relatively constant. The decrease in cash from operating activities relating to accounts receivable and inventories was partially offset by a larger increase in accounts payable in the first nine months of fiscal year 2004 resulting from higher inventory purchases to meet our higher order and sales volume.

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We used $18.5 million of cash for investing activities in the first nine months of fiscal year 2004, which compares to $38.7 million used in the first nine months of fiscal year 2003. The decrease in cash used for investing activities was primarily due to the acquisition of the non-clinical, drugs of abuse testing business of Roche Diagnostics Corporation in the first nine months of fiscal year 2003. No significant acquisition-related cash payments were made in the first nine months of fiscal year 2004.

We used $5.4 million of cash for financing activities in the first nine months of fiscal year 2004, which compares to $5.4 million used in the first nine months of fiscal year 2003. Cash used for financing activities in the first nine months of fiscal years 2004 and 2003 was primarily due to cash expenditures to repurchase common stock (which was then retired). These stock repurchases were the result of an effort to utilize excess cash to offset increases in our outstanding common shares due to stock option exercise volume. The impact of these stock repurchases on our cash balance was partially offset by proceeds from the issuance of common stock pursuant to stock option exercises.

During fiscal year 2002, we established a three-year unsecured revolving bank credit facility in the amount of $50.0 million for working capital purposes. No amounts were outstanding under this credit facility as of July 2, 2004. Borrowings under this credit facility bear interest at rates of LIBOR plus 1.25% to 2.0% depending on certain of our financial ratios at the time of borrowing. This credit facility contains certain customary covenants that limit future borrowings and require us to maintain certain levels of financial performance. We were in compliance with all such covenants and requirements at July 2, 2004. During the second quarter of fiscal 2004, we determined that our current liquidity position and the short remaining term of the credit facility no longer justified the cost of maintaining the facility. As a result, the facility was terminated in January 2004.

During fiscal year 2003, we established a short-term bank credit facility in Japan in the amount of 300 million yen (approximately $2.7 million at July 2, 2004). The credit facility is available to our wholly owned Japanese subsidiary for working capital purposes. As of July 2, 2004, an aggregate of 200 million yen (approximately $1.8 million) was outstanding under this credit facility at an annual interest rate of 0.8%, and 100 million yen (approximately $0.9 million) was available for future borrowing. This credit facility contains certain covenants that limit future borrowings under this facility, with which we were in compliance at July 2, 2004.

In addition to these bank credit facilities, as of July 2, 2004, we had a total of $74.6 million in other uncommitted and unsecured credit facilities for working capital purposes with interest rates to be established at the time of borrowing. No borrowings were outstanding under these credit facilities as of July 2, 2004. All of these credit facilities contain certain customary conditions and events of default, with which we were in compliance at July 2, 2004. Of the $74.6 million in uncommitted and unsecured credit facilities, a total of $40.2 million was limited for use by, or in favor of, certain subsidiaries at July 2, 2004, and a total of $17.5 million of this $40.2 million was being utilized in the form of bank guarantees or short-term standby letters of credit. These guarantees and letters of credit related primarily to advance payments or deposits made to our subsidiaries by customers for which separate liabilities were recorded in the unaudited condensed consolidated financial statements at July 2, 2004. No amounts had been drawn by beneficiaries under these or any other outstanding guarantees or letters of credit as of that date.

As of July 2, 2004, we had $32.5 million in term loans outstanding compared to $35.0 million at October 3, 2003. As of both July 2, 2004 and October 3, 2003, fixed interest rates on the term loans ranged from 6.7% to 7.2%. The weighted-average interest rate on the term loans was 6.8% at both July 2, 2004 and October 3, 2003. The term loans contain certain covenants that limit future borrowings and the payment of cash dividends and require the maintenance of certain levels of working capital and operating results. We were in compliance with all restrictive covenants of the term loan agreements at July 2, 2004. We also had other long-term notes payable of $4.1 million as of July 2, 2004 with a weighted-average interest rate of 0.0% and $4.1 million as of October 3, 2003 with a weighted-average interest rate of 0.1%.

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From time to time, we are obligated to pay additional cash purchase price amounts in the event that contingent financial or operational milestones are met by acquired businesses. As of July 2, 2004, up to a maximum of $9.5 million could be payable through fiscal year 2006 under these contingent consideration arrangements. Any contingent payments made will be recorded as additional goodwill at the time they are earned.

The 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 below under the heading Risk Factors—Environmental Matters).

As of July 2, 2004, we had cancelable commitments to a contractor for capital expenditures totaling approximately $3.5 million relating to the ongoing consolidation of three consumable products factories into one in Southern 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 July 2, 2004. In the aggregate, we currently anticipate that our capital expenditures will be between $6 million and $10 million during the fourth quarter of fiscal year 2004.

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

Contractual Obligations and Other Commercial Commitments

The following table summarizes future principal payments on outstanding debt and minimum rentals due for certain facilities and other leased assets under long-term, non-cancelable operating leases as of July 2, 2004:

	Three Months Ending Oct. 1, 2004		Fiscal Years
			2005		2006		2007		2008		2009		Thereafter		Total
(in thousands)
Operating leases	$	2,613	$	6,733	$	3,995	$	2,728	$	2,129	$	1,907	$	25,710	$	45,815
Notes payable		1,823		—		—		—		—		—		—		1,823
Long-term debt (including current portion)		—		6,553		2,500		2,500		6,250		—		18,750		36,553
Total contractual cash obligations	$	4,436	$	13,286	$	6,495	$	5,228	$	8,379	$	1,907	$	44,460	$	84,191

In addition to the non-cancelable contractual obligations included in the above table and the cancelable commitments for capital expenditures of approximately $3.5 million described under Liquidity and Capital Resources above, we had cancelable commitments to purchase certain superconducting magnets intended for use with leading-edge NMR systems totaling approximately $26.5 million, net of deposits paid, as of July 2, 2004. In the event that these commitments are canceled for reasons other than the supplier’s default, we may be responsible for reimbursement of actual costs incurred by the supplier.

As of July 2, 2004, 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 $9.5 million related to acquisitions as discussed under Liquidity and Capital Resources above, the specific timing and amounts of which are not currently determinable.

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Recent Accounting Pronouncements

In December 2003, the FASB issued SFAS 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106. As revised, SFAS 132 does not change the measurement or recognition of those plans; rather, it requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit plans and other postretirement benefit plans. We adopted the new disclosure requirements of SFAS 132 as revised, which were effective for interim periods beginning after December 15, 2003, in the second quarter of fiscal year 2004.

In December 2003, the SEC issued SAB 104, Revenue Recognition, which supercedes SAB 101, Revenue Recognition in Financial Statements. SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements that was superceded as a result of the issuance of EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. Additionally, SAB 104 rescinds the SEC’s FAQ issued with SAB 101 that had been codified in SEC Topic 13, Revenue Recognition. Selected portions of the FAQ have been incorporated into SAB 104. While the wording of SAB 104 differs from SAB 101 to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. We adopted the provisions of SAB 101 in fiscal year 2001 and the provisions of EITF 00-21 in fiscal year 2003. As a result, the issuance of SAB 104 had no impact on our revenue recognition policy or our financial condition or results of operations.

In May 2004, the FASB issued FASB Staff Position No. (“FSP”) 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The Act introduced a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of post-retirement health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare Part D benefit. FSP 106-2 is effective for the first interim or annual period beginning after June 15, 2004 and supersedes FSP 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which was issued in January 2004. FSP 106-2 provides authoritative guidance on the accounting for the federal subsidy provided under the Act and specifies the disclosure requirements for employers who have adopted FSP 106-2, including those who are unable to determine whether benefits provided under its plan are actuarially equivalent to Medicare Part D. We are currently evaluating the impact, if any, of the adoption of FSP 106-2 on our financial condition or results of operations and expect to complete this evaluation during the fourth quarter of fiscal year 2004. Therefore, the accompanying unaudited condensed consolidated financial statements do not reflect any possible effects of the adoption of FSP 106-2.

Risk Factors

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, 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.

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

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In the case of our Electronics Manufacturing segment, we must respond quickly to our customers’ changing requirements. Customers may change, delay, or cancel orders for many reasons, including lack of success of their products or business strategies and economic conditions in the markets they serve. In addition, some customers, including start-up companies, have limited product histories and financial resources, which make them riskier customers for us. We must determine, based on our judgment and our customers’ estimates of their future requirements, what levels of business we will accept, what start-up costs to incur for new customers or products, production schedules, component procurement commitments, personnel needs, and other resource requirements. All of these decisions require predictions about the future and judgments that could be wrong. Cancellations, reductions, or delays in orders by a significant customer or group of customers, or their inability to meet financial commitments with respect to orders or shipments, could have an adverse impact on our financial condition or results of operations.

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, primarily because there are fewer working days in our first fiscal quarter (October to December) and many customers defer December deliveries until the next calendar year, our second fiscal quarter. 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 customers spend budgeted money before their own fiscal years end. This cyclical pattern can be influenced by other factors, including general economic conditions, acquisitions, and new product introductions. Consequently, our results of operations may fluctuate significantly from quarter to quarter.

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

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

Competition. The industries in which we operate—scientific instruments, vacuum technologies, and electronics manufacturing—are highly competitive. In each of these industries, we compete against many U.S. and non-U.S. companies, most with global operations. Some of our competitors have greater financial resources than we have, which may enable them to respond more quickly to new or emerging technologies, take advantage of acquisition opportunities, compete on price, or devote greater resources to research and development, engineering, manufacturing, marketing, sales, or managerial activities. Others have greater name recognition and geographic and market presence or lower cost structures than 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.

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Additionally, in the case of electronics manufacturing, current and prospective customers continually evaluate the merits of manufacturing products internally; there is substantial excess manufacturing capacity in the industry; certain competitors manufacture or are seeking to manufacture outside the U.S. where there can be significant cost advantages, and certain customers may be willing to move to “off-shore” manufacturing for cost reasons; larger competitors might have greater direct buying power from suppliers; and electronics manufacturing processes are generally not subject to significant intellectual property protection.

For all of the foregoing reasons, competition could result in lower 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.

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

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

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

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 or fire, 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 foreign countries are subject to factory-specific and/or industry-wide collective bargaining agreements. Of these, certain of our employees in Australia are subject to a collective bargaining agreement that was renegotiated following a recent brief work stoppage. A further 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.

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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 avoid 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 intend to acquire companies and operations in the future, as part of our growth strategy. 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, and managing transaction costs. All of this must be done without diverting management and other resources from other operations and activities. Failure to successfully evaluate, negotiate, and integrate acquisitions could have an adverse effect on our financial condition or results of operations.

Foreign Operations and Currency Exchange Rates. A significant portion of our sales, manufacturing activities, and employees are outside of the United States. 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; 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.

Additionally, the U.S. dollar value of our sales and operating costs varies with currency exchange rate fluctuations. Because we manufacture and sell in the U.S. and a number of 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 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.

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

Environmental Matters. Our operations are subject to various foreign, federal, state, and local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. These regulations increase the costs and potential liabilities of 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.

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

For certain of these sites and facilities, various uncertainties make it difficult to assess the likelihood and scope of further environmental-related activities or to estimate the future costs of such activities if undertaken. As of July 2, 2004, it was nonetheless estimated that our share of the future exposure for environmental-related costs for these sites and facilities ranged in the aggregate from $1.4 million to $2.3 million (without discounting to present value). The time frame over which these costs are expected to be incurred varies with each site and facility, ranging up to approximately 30 years as of July 2, 2004. No amount in the foregoing range of estimated future costs is believed to be more probable of being incurred than any other amount in such range, and we therefore had an accrual of $1.4 million as of July 2, 2004.

As to certain sites and facilities, sufficient knowledge has been gained to be able to better estimate the scope and certain costs of future environmental-related activities. As of July 2, 2004, it was estimated that our share of the future exposure for these environmental-related costs for these sites and facilities ranged in the aggregate from $5.7 million to $12.1 million (without discounting to present value). The time frame over which these costs are expected to be incurred varies with each site and facility, ranging up to approximately 27 years as of July 2, 2004. As to each of these sites and facilities, it was determined that a particular amount within the range of certain estimated costs was a better estimate of the future environmental-related cost than any other amount within the range, and that the amount and timing of these future costs were reliably determinable. Together, the undiscounted amounts for these sites totaled $7.2 million at July 2, 2004. We therefore had an accrual of $4.8 million as of July 2, 2004, which represents the best estimate of our share of these future environmental-related costs discounted at 4%, net of inflation. This accrual is in addition to the $1.4 million described in the preceding paragraph.

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

An insurance company 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 $1.1 million receivable in other assets as of July 2, 2004 for our share of such recovery. We have not reduced any environmental-related liability in anticipation of recoveries from third parties.

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 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.

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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, and failure to comply could result in suspension of or restrictions on our operations, product recalls, fines, and other civil and criminal penalties, private party litigation, and damage to our reputation, which could have an adverse effect on our financial condition or results of operations.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

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

At July 2, 2004, there were no outstanding forward contracts designated as cash flow hedges of forecasted transactions. During the nine months ended July 2, 2004, 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 July 2, 2004 follows:

	Notional Value Sold		Notional Value Purchased
(in thousands)
Euro	$	—	$	46,034
Australian dollar		—		14,370
Japanese yen		8,686		—
British pound		—		4,878
Canadian dollar		4,087		—
Swedish krona		1,124		—
	$	13,897	$	65,282

Interest Rate Risk. We have no material exposure to market risk for changes in interest rates. We invest any excess cash primarily in short-term U.S. Treasury securities and money market funds, and changes in interest rates would not be material to our financial condition or results of operations. We enter into debt obligations principally to support general corporate purposes, including working capital requirements, capital expenditures, and acquisitions. At July 2, 2004, our debt obligations had fixed interest rates.

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

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

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Debt Obligations.

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

	Three Months Ending Oct. 1, 2004			Fiscal Years
				2005			2006			2007			2008			2009			Thereafter			Total
(dollars in thousands)
Notes payable	$	1,823		$	—		$	—		$	—		$	—		$	—		$	—		$	1,823
Average interest rate		0.8	%		—	%		—	%		—	%		—	%		—	%		—	%		0.8	%
Long-term debt (including current portion)	$	—		$	6,533		$	2,500		$	2,500		$	6,250		$	—		$	18,750		$	36,553
Average interest rate		—	%		2.7	%		7.2	%		7.2	%		6.7	%		—	%		6.7	%		6.1	%

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 retirement plans in certain foreign countries. Our obligations under these defined benefit plans will ultimately be settled in the future and are therefore subject to estimation. Defined benefit pension accounting under SFAS 87, Employers’ Accounting for Pensions, is intended to reflect the recognition of future benefit costs over the employees’ estimated service periods based on the terms of the retirement plans and the investment and funding decisions made by us.

For our defined benefit retirement 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 retirement 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, 2003, the estimated long-term rate of return on our defined benefit pension plan assets ranged from 0.5% to 7.0% (weighted-average of 6.4%), and the assumed discount rate for our defined benefit pension plan obligations ranged from 1.5% to 5.5% (weighted-average of 5.3%).

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 retirement plans of $2.3 million in fiscal year 2003, $1.7 million in fiscal year 2002, and $0.9 million in fiscal year 2001, and expect our net periodic pension cost (excluding any settlement or curtailment gains or losses) to be approximately $2.7 million in fiscal year 2004. 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 2004 by $0.4 million and $1.4 million, respectively. As of October 3, 2003, our projected benefit obligation relating to defined benefit retirement plans was $57.4 million. A one percent decrease in the weighted-average estimated discount rate would increase this obligation by $11.6 million.

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Item 4.    Controls and Procedures

Evaluation of disclosure controls and procedures. Our management evaluated, with the participation of the Chief Executive Officer and the Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.

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

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PART II

OTHER INFORMATION

Item 2.    Changes in Securities, Use of Proceeds, and Issuer Purchase of Equity Securities

(e) During fiscal year 2002, the Company’s Board of Directors authorized the Company to repurchase up to 1,000,000 shares of its common stock until October 1, 2004. No shares were repurchased under this authorization during the fiscal quarter ended July 2, 2004. During the nine months ended July 2, 2004, the Company repurchased and retired 588,952 shares under this authorization at an aggregate cost of $23.9 million. As of July 2, 2004, the Company had remaining authorization for future repurchases of 7,897 shares.

On May 11, 2004, the Company’s Board of Directors authorized the Company to repurchase up to an additional 1,000,000 shares of its common stock until September 30, 2007. As of July 2, 2004, no shares had been repurchased under this authorization.

Item 6.    Exhibits and Reports on Form 8-K

(a)    Exhibits.

		Incorporated by Reference
Exhibit No.	Exhibit Description	Form	Date	Exhibit Number	Filed Herewith
10.20	Change in Control Agreement, dated as of July 1, 2004, between Varian, Inc. and Sean M. Wirtjes.				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.

(b) Reports on Form 8-K.

The Company furnished a Current Report on Form 8-K on April 28, 2004 for its press release reporting its results for the second quarter ended April 2, 2004.

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SIGNATURES

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

	VARIAN, INC. (Registrant)
Date: August 16, 2004	By:	/s/ G. EDWARD MCCLAMMY
		G. Edward McClammy Senior Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer)

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EX-10.20

Exhibit 10.20

CHANGE IN CONTROL AGREEMENT

THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT (“Agreement”) is entered into effective as of July 1, 2004, by and between VARIAN, INC., a Delaware corporation (the “Company”)¹, and Sean M. Wirtjes, an employee of the Company (“Employee”).

The Company’s Board of Directors (the “Board”) has determined that it is in the best interest of the Company and its stockholders for the Company to agree to pay Employee termination compensation in the event Employee should leave the employ of the Company under the circumstances described below. The Board recognizes that the possibility of a proposal from a third person, whether or not solicited by the Company, concerning a possible “Change in Control” of the Company (as such language is defined in Section 3(d)) will be unsettling to Employee. Therefore, the arrangements set forth in this Agreement are being made to help assure a continuing dedication by Employee to Employee’s duties to the Company notwithstanding the proposal or occurrence of a Change in Control. The Board believes it imperative, should the Company receive any proposal from a third party, that Employee, without being influenced by the uncertainties of Employee’s own situation, be able to assess and advise the Board whether such proposals are in the best interest of the Company and its stockholders, and to enable Employee to take action regarding such proposals as the Board might determine to be appropriate. The Board also wishes to demonstrate to key personnel that the Company desires to enhance management relations and its ability to retain and, if needed, to attract new management, and intends to ensure that loyal and dedicated management personnel are treated fairly.

In view of the foregoing, the Company and Employee agree as follows:

1.    EFFECTIVE DATE AND TERM OF AGREEMENT.

This Agreement is effective and binding on the Company and Employee as of the date hereof; provided, however, that, subject to Section 2(d), the provisions of Sections 3 and 4 shall become operative only upon the Change in Control Date.

2.    EMPLOYMENT OF EMPLOYEE.

(a) Except as provided in Sections 2(b), 2(c) and 2(d), nothing in this Agreement shall affect any right which Employee may otherwise have to terminate Employee’s employment, nor shall anything in this Agreement affect any right which the Company may have to terminate Employee’s employment at any time in any lawful manner.

¹ “Company” shall include the Company, any successor to the Company’s business and/or assets, and any party which executes and delivers the agreement required by Section 6(e) or which otherwise becomes bound by the terms and conditions of this Agreement by operation of law or otherwise.

(b) In the event of a Potential Change in Control, to be entitled to receive the benefits provided by this Agreement, Employee will not voluntarily leave the employ of the Company, and will continue to perform Employee’s regular duties and the services specified in the recitals of this Agreement until the Change in Control Date. Should Employee voluntarily terminate employment prior to the Change in Control Date, this Agreement shall lapse upon such termination and be of no further force or effect.

(c) If Employee’s employment terminates on or after the Change in Control Date, the Company will provide to Employee the payments and benefits as provided in Sections 3 and 4.

(d) If Employee’s employment is terminated by the Company prior to the Change in Control Date but on or after a Potential Change in Control Date, then the Company will provide to Employee the payments and benefits as provided in Sections 3 and 4 unless the Company reasonably demonstrates that Employee’s termination of employment neither (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control nor (ii) arose in connection with or in anticipation of a Change in Control. Solely for purposes of determining the timing of payments and the provision of benefits in Sections 3 and 4 under the circumstances described in this Section 2(d), Employee’s date of termination shall be deemed to be the Change in Control Date.

3.    TERMINATION FOLLOWING CHANGE IN CONTROL.

(a) If a Change in Control shall have occurred, Employee shall be entitled to the benefits provided in Section 4 upon the subsequent termination of Employee’s employment within the applicable period set forth in Section 4 unless such termination is due to Employee’s death or Disability or is for Cause or is effected by Employee other than for Good Reason (as such terms are defined in Section 3(d)).

(b) If following a Change in Control, Employee’s employment is terminated by reason of Employee’s death or Disability, Employee shall be entitled to death or long-term disability benefits from the Company no less favorable than the most favorable benefits to which Employee would have been entitled had the death or Disability occurred at any time during the period commencing one (1) year prior to the Change in Control.

(c) If Employee’s employment shall be terminated by the Company for Cause or by Employee other than for Good Reason during the term of this Agreement, the Company shall pay Employee’s Base Salary through the date of termination at the rate in effect at the time notice of termination is given, and the Company shall have no further obligations to Employee under this Agreement.

(d) For purposes of this Agreement:

“Base Salary” shall mean the annual base salary paid to Employee immediately prior to a

Change in Control, provided that such amount shall in no event be less than the annual base salary paid to Employee during the one (1) year period immediately prior to the Change in Control.

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A “Change in Control” shall be deemed to have occurred if:

(i) Any individual or group constituting a “person”, as such term is used in Sections l3(d) and l4(d)(2) of the Exchange Act (other than (A) the Company or any of its subsidiaries or (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of any of its subsidiaries), is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company’s outstanding securities then entitled ordinarily (and apart from rights accruing under special circumstances) to vote for the election of directors; or

(ii) Continuing Directors cease to constitute at least a majority of the Board; or

(iii) there occurs a reorganization, merger, consolidation or other corporate transaction involving the Company (a “Transaction”), in each case with respect to which the stockholders of the Company immediately prior to such Transaction do not, immediately after the Transaction, own more than 50% of the combined voting power of the Company or other corporation resulting from such Transaction; or

(iv) all or substantially all of the assets of the Company are sold, liquidated or distributed;

provided, however, that a “Change in Control” shall not be deemed to have occurred under this Agreement if, prior to the occurrence of a specified event that would otherwise constitute a Change in Control hereunder, the disinterested Continuing Directors then in office, by a majority vote thereof, determine that the occurrence of such specified event shall not be deemed to be a Change in Control with respect to Employee hereunder if the Change in Control results from actions or events in which Employee is a participant in a capacity other than solely as an officer, employee or director of the Company.

“Change in Control Date” shall mean the date on which a Change in Control occurs.

“Cause” shall mean:

(i) The continued willful failure of Employee to perform Employee’s duties to the Company (other than any such failure resulting from Employee’s incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to Employee by the Board or a committee thereof; or

(ii) The willful commission by Employee of a wrongful act that caused or was reasonably likely to cause substantial damage to the Company, or an act of fraud in the performance of Employee’s duties on behalf of the Company; or

(iii) The conviction of Employee for commission of a felony in connection with the performance of Employee’s duties on behalf of the Company; or

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(iv) The order of a federal or state regulatory authority having jurisdiction over the Company or its operations or by a court of competent jurisdiction requiring the termination of Employee’s employment by the Company.

“Continuing Directors” shall mean the directors of the Company in office on the date hereof and any successor to any such director who was nominated or selected by a majority of the Continuing Directors in office at the time of the director’s nomination or selection and who is not an “affiliate” or “associate” (as defined in Regulation 12B under the Exchange Act) of any person who is the beneficial owner, directly or indirectly, of securities representing ten percent (10%) or more of the combined voting power of the Company’s outstanding securities then entitled ordinarily to vote for the election of directors.

“Disability” shall mean Employee’s incapacity due to physical or mental illness such that Employee shall have become qualified to receive benefits under the Company’s long-term disability plan as in effect on the date of the Change in Control.

“Dispute” shall mean, in the case of termination of Employee’s employment for Disability or Cause, that Employee challenges the existence of Disability or Cause, and in the case of termination of Employee’s employment for Good Reason, that the Company challenges the existence of Good Reason for termination of Employee’s employment.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Good Reason” shall mean:

(i) The assignment of Employee to duties which are materially different from Employee’s duties immediately prior to the Change in Control and which result in a material reduction in Employee’s authority and responsibility when compared to the highest level of authority and responsibility assigned to Employee at any time during the six (6) month period prior to the Change in Control Date; or

(ii) A reduction of Employee’s total compensation as the same may have been increased from time to time after the Change in Control Date other than (A) a reduction implemented with the consent of Employee or (B) a reduction that is generally comparable (proportionately) to compensation reductions imposed on senior executives of the Company generally; or

(iii) The failure to provide to Employee the benefits and perquisites, including participation on a comparable basis in the Company’s stock option, incentive, and other similar plans in which employees of the Company of comparable title and salary grade participate, as were provided to Employee immediately prior to a Change in Control, or with a package of benefits and perquisites that are substantially comparable in all material respects to such benefits and perquisites provided prior to the Change in Control; or

(iv) The relocation of the office of the Company where Employee is employed immediately prior to the Change in Control Date (the “CIC Location”) to a location which is more than 50 miles away from the CIC Location or the Company’s requiring Employee to be based more than 50 miles away from the CIC Location (except for required travel on the

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Company’s business to an extent substantially consistent with Employee’s customary business travel obligations in the ordinary course of business prior to the Change in Control Date); or

(v) The failure of the Company to obtain promptly upon any Change in Control the express written assumption of an agreement to perform this Agreement by any successor as contemplated in Section 6(e); or

(vi) The attempted termination of Employee’s employment for Cause on grounds insufficient to constitute a basis of termination for Cause under this Agreement; or

(vii) The failure of the Company to promptly make any payment into escrow when so required by Section 3(f).

“Potential Change in Control” shall mean the earliest to occur of (a) the execution of an agreement or letter of intent, the consummation of the transactions described in which would result in a Change in Control, (b) the approval by the Board of a transaction or series of transactions, the consummation of which would result in a Change in Control, or (c) the public announcement of a tender offer for the Company’s voting stock, the completion of which would result in a Change in Control; provided, that no such event shall be a “Potential Change in Control” unless (i) in the case of any agreement or letter of intent described in clause (a), the transaction described therein is subsequently consummated by the Company and the other party or parties to such agreement or letter of intent and thereupon constitutes a “Change in Control”, (ii) in the case of any Board-approved transaction described in clause (b), the transaction so approved is subsequently consummated and thereupon constitutes a “Change in Control” or (iii) in the case of any tender offer described in clause (c), such tender offer is subsequently completed and such completion thereupon constitutes a “Change in Control”.

“Potential Change in Control Date” shall mean the date on which a Potential Change in Control occurs.

(e) Any termination of employment by the Company or by Employee shall be communicated by written notice, specify the date of termination, state the specific basis for termination and set forth in reasonable detail the facts and circumstances of the termination in order to provide a basis for determining the entitlement to any payments under this Agreement.

(f) If within thirty (30) days after notice of termination is given, the party to whom the notice was given notifies the other party that a Dispute exists, the parties will promptly pursue resolution of such Dispute with reasonable diligence; provided, however, that pending resolution of any such Dispute, the Company shall pay 75% of any amounts which would otherwise be due Employee pursuant to Section 4 if such Dispute did not exist into escrow pending resolution of such Dispute and pay 25% of such amounts to Employee. Employee agrees to return to the Company such amounts to which it is ultimately determined that he is not entitled.

4.    PAYMENTS AND BENEFITS UPON TERMINATION.

(a) If within eighteen (18) months after a Change in Control, the Company terminates Employee’s employment other than by reason of Employee’s death, Disability or for

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Cause, or if Employee terminates Employee’s employment for Good Reason, then the Employee shall be entitled to the following payments and benefits:

(i) The Company shall pay to Employee as compensation for services rendered, no later than five (5) business days following the date of termination, a lump sum severance payment equal to 2.00 multiplied by the sum of (A) Employee’s Base Salary, (B) the highest annual bonus that was paid to Employee in any of the three fiscal years ending prior to the date of termination under the Company’s Management Incentive Plan (the “MIP”), and (C) the highest cash bonus for a performance period of more than one fiscal year that was paid to Employee in any of the three fiscal years ending prior to the date of termination under the MIP.

(ii) The Company shall pay to Employee as compensation for services rendered, no later than five (5) business days following the date of termination, a lump sum payment equal to a pro rata portion (based on the number of days elapsed during the fiscal year and/or other bonus performance period in which the termination occurs) of Employee’s target bonus under the MIP for the fiscal year and for any other partially completed bonus performance period in which the termination occurs.

(iii) All waiting periods for the exercise of any stock options granted to Employee and all conditions or restrictions of any restricted stock granted to Employee shall terminate, and all such options shall be exercisable in full according to their terms, and the restricted stock shall be transferred to Employee as soon as reasonably practicable thereafter.

(iv) Employee’s participation as of the date of termination in the life, medical/dental/vision and disability insurance plans and financial/tax counseling plan of the Company shall be continued on the same terms (including any cost sharing) as if Employee were an employee of the Company (or equivalent benefits shall be provided) until the earlier of Employee’s commencement of substantially equivalent full-time employment with a new employer or twenty-four (24) months after the date of termination; provided, however, that after the date of termination, Employee shall no longer be entitled to receive Company-paid executive physicals or, upon expiration of the applicable memberships, Company-paid airline memberships. In the event Employee shall die before the expiration of the period during which the Company is required to continue Employee’s participation in such insurance plans, the participation of Employee’s surviving spouse and family in the Company’s insurance plans shall continue throughout such period.

(v) Employee may elect upon termination to purchase any automobile then in the possession of Employee and subject to a lease of which the Company is the lessor by payment to the Company of the residual value set forth in the lease, without any increase for remaining lease payments during the term or other lease breakage costs. Employee may elect to have any such payment deducted from any payments due the Employee hereunder.

(vi) The entire balance credited to Employee’s account under the Company’s Supplemental Retirement Plan shall, no later than five (5) business days following the date of termination, be paid lump sum in cash to Employee.

(vii) The termination of Employee’s employment with the Company shall constitute a “retirement” from the Company for purposes of all Company compensation and

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benefits plans and programs to the extent Employee is otherwise eligible for “retirement” as defined by the Company immediately prior to the Change in Control.

(viii) All payments and benefits provided under this Agreement shall be subject to applicable tax withholding.

(b) Following Employee’s termination of employment for any reason, the Company shall have the unconditional right to reduce any payments owed to Employee hereunder by the amount of any due and unpaid principal and interest on any loans by the Company to Employee and Employee hereby agrees and consents to such right on the part of the Company.

5.    GROSS-UP PAYMENT.

(a) Notwithstanding anything herein to the contrary, if it is determined that any Payment would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties with respect to such excise tax (such excise tax, together with any interest or penalties thereon, is herein referred to as an “Excise Tax”), then Employee shall be entitled to an additional payment (a “Gross-Up Payment”) in an amount that will place Employee in the same after-tax economic position that Employee would have enjoyed if the Excise Tax had not applied to the Payment. The amount of the Gross-Up Payment shall be determined by a nationally-recognized independent public accounting firm designated by agreement between Employee and the Company (the “Accounting Firm”). No Gross-Up Payments shall be payable hereunder if the Accounting Firm determines that the Payments are not subject to an Excise Tax.

“Payment” means (i) any amount due or paid to Employee under this Agreement, (ii) any amount that is due or paid to Employee under any plan, program or arrangement of the Company and its subsidiaries and (iii) any amount or benefit that is due or payable to Employee under this Agreement or under any plan, program or arrangement of the Company and its subsidiaries not otherwise covered under clause (i) or (ii) hereof which must reasonably be taken into account under Section 280G of the Code in determining the amount the “parachute payments” received by Employee, including, without limitation, any amounts which must be taken into account under Section 280G of the Code as a result of (A) the acceleration of the vesting of any option, restricted stock or other equity award, (B) the acceleration of the time at which any payment or benefit is receivable by Employee or (C) any contingent severance or other amounts that are payable to Employee.

(b) Subject to the provisions of Section 5(c), all determinations required under this Section 5, including whether a Gross-Up Payment is required, the amount of the Payments constituting excess parachute payments, and the amount of the Gross-Up Payment, shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to Employee and the Company within fifteen days of the date reasonably requested by Employee or the Company on which a determination under this Section 5 is necessary or advisable. The Company shall pay to Employee the initial Gross-Up Payment within 5 days of the receipt by Employee and the Company of the determination of the Accounting Firm. If the Accounting Firm determines that no Excise Tax is payable by Employee, the Company shall cause its accountants to provide Employee with an opinion that the Accounting Firm has substantial authority under the Code not to report an Excise Tax on Employee’s Federal income tax return. Any

7

determination by the Accounting Firm shall be binding upon Employee and the Company. If the initial Gross-Up Payment is insufficient to cover the amount of the Excise Tax that is ultimately determined to be owing by Employee with respect to any Payment (hereinafter an “Underpayment”), the Company, after exhausting its remedies under Section 5(c) below, shall promptly pay to Employee an additional Gross-Up Payment in respect of the Underpayment.

(c) Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notice shall be given as soon as practicable after Employee knows of such claim and shall apprise the Company of the nature of the claim and the date on which the claim is requested to be paid. Employee agrees not to pay the claim until the expiration of the thirty (30) day period following the date on which Employee notifies the Company, or such shorter period ending on the date the Taxes with respect to such claim are due (the “Notice Period”). If the Company notifies Employee in writing prior to the expiration of the Notice Period that it desires to contest the claim, Employee shall: (i) give the Company information reasonably requested by the Company relating to the claim; (ii) take such action in connection with the claim as the Company may reasonably request, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and reasonably acceptable to Employee; (iii) cooperate with the Company in good faith in contesting the claim; and (iv) permit the Company to participate in any proceedings relating to the claim. Employee shall permit the Company to control all proceedings related to the claim and, at its option, permit the Company to pursue or forgo any and all administrative appeals, proceedings, hearings, and conferences with the taxing authority in respect of such claim. If requested by the Company, Employee agrees either to pay the tax claimed and sue for refund or contest the claim in any permissible manner and to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts as the Company shall determine; provided, however, that, if the Company directs Employee to pay such claim and pursue a refund, the Company shall advance the amount of such payment to Employee on an after-tax and interest-free basis (an “Advance”). The Company’s control of the contest related to the claim shall be limited to the issues related to the Gross-Up Payment and Employee shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or other taxing authority. If the Company does not notify Employee in writing prior to the end of the Notice Period of its desire to contest the claim, the Company shall pay to Employee an additional Gross-Up Payment in respect of the excess parachute payments that are the subject of the claim, and Employee agrees to pay the amount of the Excise Tax that is the subject of the claim to the applicable taxing authority in accordance with applicable law.

(d) If, after receipt by Employee of an Advance, Employee becomes entitled to a refund with respect to the claim to which such Advance relates, Employee shall pay the Company the amount of the refund (together with any interest paid or credited thereon after Taxes applicable thereto). If, after receipt by Employee of an Advance, a determination is made that Employee shall not be entitled to any refund with respect to the claim and the Company does not promptly notify Employee of its intent to contest the denial of refund, then the amount of the Advance shall not be required to be repaid by Employee and the amount thereof shall offset the amount of the additional Gross-Up Payment then owing to Employee.

(e) The Company shall indemnify Employee and hold Employee harmless, on an after-tax basis, from any costs, expenses, penalties, fines, interest or other liabilities (“Losses”)

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incurred by Employee with respect to the exercise by the Company of any of its rights under this Section 5, including, without limitation, any Losses related to the Company’s decision to contest a claim or any imputed income to Employee resulting from any Advance or action taken on Employee’s behalf by the Company hereunder. The Company shall pay all legal fees and expenses incurred under this Section 5, and shall promptly reimburse Employee for the reasonable expenses incurred by Employee in connection with any actions taken by the Company or required to be taken by Employee hereunder. The Company shall also pay all of the fees and expenses of the Accounting Firm, including, without limitation, the fees and expenses related to the opinion referred to in Section 5(b).

6.    GENERAL.

(a) Employee shall retain in confidence under the conditions of the Company’s confidentiality agreement with Employee any proprietary or other confidential information known to Employee concerning the Company and its business so long as such information is not publicly disclosed and disclosure is not required by an order of any governmental body or court. If required, Employee shall return to the Company any memoranda, documents or other materials proprietary to the Company.

(b) While employed by the Company and following the termination of such employment (other than a termination of employment by Employee for Good Reason or by the Company other than for Cause) for a period of two (2) years, Employee shall not, whether for Employee’s own account or for the account of any other individual, partnership, firm, corporation or other business organization, intentionally solicit, endeavor to entice away from the Company or a subsidiary of the Company (each, a “Protected Party”), or otherwise interfere with the relationship of a Protected Party with, any person who is employed by a Protected Party or any person or entity who is, or was within the then most recent twelve (12) month period, a customer or client of a Protected Party.

Employee acknowledges that a breach of any of the covenants contained in this Section 6(b) may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it may not be possible to measure damages for such injuries precisely and that, in the event of such a breach, any payments remaining under the terms of this Agreement shall cease and the Company may be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Employee from engaging in activities prohibited by this Section 6(b) or such other relief as may be required to specifically enforce all of the covenants in this Section 6(b). Employee agrees to and hereby does submit to in personam jurisdiction before each and every such court in the State of California, County of Santa Clara, for that purpose. This Section 6(b) shall survive any termination of this Agreement.

(c) If litigation is brought by Employee to enforce or interpret any provision contained in this Agreement, the Company shall indemnify Employee for Employee’s reasonable attorney’s fees and disbursements incurred in such litigation and pay prejudgment interest on any money judgment obtained by Employee calculated at the prime rate of interest in effect from time to time at the Bank of America, San Francisco, from the date that payment should have been made under the Agreement, provided that Employee shall not have been found by the court in which such litigation is pending to have had no cause in bringing the action, or to have acted

9

in bad faith, which finding must be final with the time to appeal therefrom having expired and no appeal having been taken.

(d) Except as provided in Section 4, the Company’s obligation to pay to Employee the compensation and to make the arrangements provided in this Agreement shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Employee or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment.

(e) The Company shall require any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all of the business and/or assets of the Company, by written agreement to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.

(f) This Agreement shall inure to the benefit of and be enforceable by Employee’s heirs, successors and assigns. If Employee should die while any amounts would still be payable to Employee hereunder if Employee had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Employee’s heirs, successors and assigns.

(g) For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows:

If to Employee:	If to the Company:
	Varian, Inc.
	3120 Hansen Way
	Palo Alto, CA 94304-1030
	Attn: Vice President, Human Resources

or to such other address as either party furnishes to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

(h) This Agreement shall constitute the entire agreement between Employee and the Company concerning the subject matter of this Agreement.

(i) The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California without giving effect to the provisions, principles or policies thereof relating to choice or conflict of laws. The invalidity or unenforceability of any provision of this Agreement in any circumstance shall not affect the validity or enforceability of such provision in any other circumstance or the validity or enforceability of any other provision of this Agreement, and, except to the extent such provision is invalid or unenforceable, this Agreement shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such

10

jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof in such jurisdiction, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. This Section 6(i) shall survive any termination of this Agreement.

(j) This Agreement may be terminated by the Company pursuant to a resolution adopted by the Board at any time prior to a Potential Change in Control Date. After a Change in Control Date or a Potential Change in Control Date, this Agreement may only be terminated with the consent of Employee.

(k) No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement and this Agreement shall supersede all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, with respect to the subject matter hereof.

IN WITNESS WHEREOF, the parties acknowledge that they have read and understand the terms of this Agreement and have executed this Agreement to be effective as of July 1, 2004.

VARIAN, INC.	EMPLOYEE
/S/    ARTHUR W. HOMAN	/S/    SEAN M. WIRTJES
By:     Arthur W. Homan	Sean M. Wirtjes
Title:  Vice President, General Counsel   and Secretary

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Garry W. Rogerson, certify that:

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

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

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

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

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

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 16, 2004

/s/ GARRY W. ROGERSON

Garry W. Rogerson

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, G. Edward McClammy, certify that:

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

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

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

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

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

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 16, 2004

/s/ G. EDWARD MCCLAMMY

G. Edward McClammy

Senior Vice President, Chief Financial Officer

and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report on Form 10-Q of Varian, Inc. for the period ended July 2, 2004, as filed with the Securities and Exchange Commission on the date of this certification (the “Report”), the undersigned hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Varian, Inc.

Dated: August 16, 2004

/s/ GARRY W. ROGERSON

Garry W. Rogerson

President and Chief Executive Officer

A signed original of this written statement as required by Section 906 has been provided to Varian, Inc. and will be retained by Varian, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report on Form 10-Q of Varian, Inc. for the period ended July 2, 2004, as filed with the Securities and Exchange Commission on the date of this certification (the “Report”), the undersigned hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Varian, Inc.

Dated: August 16, 2004

/s/ G. EDWARD MCCLAMMY

G. Edward McClammy

Senior Vice President, Chief Financial Officer

and Treasurer

A signed original of this written statement as required by Section 906 has been provided to Varian, Inc. and will be retained by Varian, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.