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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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

FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

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

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

COMMISSION FILE NUMBER 000-25393

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

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

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

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

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

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

The number of shares of the Registrant's common stock outstanding as of
April 28, 2000 was 32,141,527.

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TABLE OF CONTENTS

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

RISK FACTORS RELATING TO FORWARD-LOOKING STATEMENTS

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

PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

QUARTER ENDED SIX MONTHS ENDED
----------------------- ----------------------
MAR. 31, APR. 2, MAR. 31, APR. 2,
2000 1999 2000 1999
---------- --------- --------- ---------

SALES....................................................... $ 177,310 $148,936 $337,262 $282,232
Cost of sales............................................... 109,820 101,712 207,919 182,378
---------- --------- --------- ---------
GROSS PROFIT................................................ 67,490 47,224 129,343 99,854
---------- --------- --------- ---------

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

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

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

See accompanying Notes to the Consolidated Financial Statements.

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

MAR. 31, OCT. 1,
2000 1999
--------- ----------
(UNAUDITED)

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

LIABILITIES AND STOCKHOLDERS' EQUITY

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

CONTINGENCIES (NOTE 9)

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

See accompanying Notes to the Consolidated Financial Statements.

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

SIX MONTHS ENDED
--------- --- --------
MAR. 31, APR. 2,
2000 1999
--------- --------

NET CASH PROVIDED BY OPERATING ACTIVITIES........................................... $ 32,513 $ 8,584
--------- --------

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

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

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

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

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

See accompanying Notes to the Consolidated Financial Statements.

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

NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

These interim consolidated financial statements of Varian, Inc. and its
subsidiary companies (collectively, the "Company") have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The year ended
October 1, 1999 balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. These interim consolidated financial statements should be
read in conjunction with the financial statements and the notes thereto included
in the Company's Form 10-K for the year ended October 1, 1999, which has been
filed with the Securities and Exchange Commission. In the opinion of the
Company's management, the interim consolidated financial statements include all
normal recurring adjustments necessary to present fairly the information
required to be set forth therein. The results of operations for the second
quarter and six months ended March 31, 2000 are not necessarily indicative of
the results to be expected for a full year or for any other periods.

NOTE 2. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

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

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

NOTE 3. CHANGE IN FUNCTIONAL CURRENCY

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

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

NOTE 4. BALANCE SHEET DETAIL

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

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

NOTE 5. FORWARD EXCHANGE CONTRACTS

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

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

NOTE 6. NET EARNINGS PER SHARE

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

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

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

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

A reconciliation follows:
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

QUARTER ENDED SIX MONTHS ENDED
------------ --- ----------- ------------- - -----------
MAR. 31, APR. 2, MAR. 31, APR. 2,
2000 1999 2000 1999
------------ ----------- ------------- -----------

BASIC
Net earnings (loss).............................. $ 10,149 $ (9,974) $ 18,572 $ (5,715)
Weighted average shares outstanding.............. 31,498 30,423 31,154 30,423
Net earnings (loss) per share.................... $ 0.32 $ (0.33) $ 0.60 $ (0.19)
============ =========== ============= ===========

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

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

NOTE 7. COMPREHENSIVE INCOME (LOSS)

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

NOTE 8. DEBT AND CREDIT FACILITIES

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

NOTE 9. CONTINGENCIES

ENVIRONMENTAL MATTERS. In the Distribution Agreement, the Company and VSEA
each agreed to indemnify VMS for one-third of certain environmental
investigation and remediation costs (after adjusting for any insurance proceeds
and tax benefits recognized or realized by VMS for such costs), as further
described below.

VMS has been named by the U.S. Environmental Protection Agency or third
parties as a potentially responsible party under the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, at nine sites where
VAI is alleged to have shipped manufacturing waste for recycling, treatment, or
disposal. VMS is also involved in various stages of environmental investigation,
monitoring, and/or remediation

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

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

For certain of these sites and facilities, various uncertainties make it
difficult to assess the likelihood and scope of further investigation or
remediation activities or to estimate the future costs of such activities if
undertaken. As of March 31, 2000, it was nonetheless estimated that the
Company's share of the future exposure for environmental-related investigation
and remediation costs for these sites and facilities ranged in the aggregate
from $4.5 million to $10.5 million (without discounting to present value). The
time frame over which these costs are expected to be incurred varies with each
site and facility, ranging up to approximately 30 years as of March 31, 2000. No
amount in the foregoing range of estimated future costs is believed to be more
probable of being incurred than any other amount in such range, and the Company
therefore accrued $4.5 million as of March 31, 2000.

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

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

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

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

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

NOTE 10. RESTRUCTURING CHARGES

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

CASH
ACCRUAL AT PAYMENTS AND ACCRUAL AT
DECEMBER 31, OTHER MARCH 31,
1999 REDUCTIONS 2000
----------- ------------- -----------

(IN THOUSANDS)
Lease payments and other facility expenses............................. $ 1,131 $ 89 $ 1,042
Severance and other related employee benefits.......................... 1,576 398 1,178
----------- ------------- -----------
Total.................................................................. $ 2,707 $ 487 $ 2,220
=========== ============= ===========

NOTE 11. INDUSTRY SEGMENTS

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

Transactions between segments are accounted for at cost and are not
included in sales. Accordingly, the following information is provided for
purposes of achieving an understanding of operations, but may not be indicative
of the financial results of the reported segments were they independent
organizations. In addition, comparisons of the Company's operations to similar
operations of other companies may not be meaningful.

INDUSTRY SEGMENTS
(IN MILLIONS)
QUARTER ENDED QUARTER ENDED
--------------------------- ------------------------------
MARCH 31, 2000 APR. 2, 1999 MAR. 31, 2000 APR. 2, 1999
------------ ----------- ------------- -------------
PRETAX EARNINGS PRETAX EARNINGS
SALES SALES (LOSS) (LOSS)
------------ ----------- ------------- -------------

Scientific Instruments....................... $ 102.0 $ 97.4 $ 11.2 $ (16.1)
Vacuum Technologies ......................... 34.8 26.6 5.8 (1.5)
Electronics Manufacturing.................... 40.5 24.9 3.0 1.1
------------ ----------- ------------- -------------
Total industry segments...................... 177.3 148.9 20.0 (16.5)
General corporate............................ -- -- (3.1) (1.7)
Interest (exp.)/inc., net ................... -- -- (0.5) 0.2
------------ ----------- ------------- -------------
Total ....................................... $ 177.3 $ 148.9 $ 16.4 $ (18.0)
============ =========== ============= =============

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

- --------------------------------------------------------------------------------
INDUSTRY SEGMENTS
(IN MILLIONS)
SIX MONTHS ENDED SIX MONTHS ENDED
---------------------------- --------------------------------
MARCH 31, 2000 APR. 2, 1999 MAR. 31, 2000 APR. 2, 1999
------------ ----------- --------------- ---------------
PRETAX EARNINGS PRETAX EARNINGS
SALES SALES (LOSS) (LOSS)
------------ ----------- --------------- ---------------

Scientific Instruments........................ $ 196.3 $ 187.1 $ 22.3 $ (9.3)
Vacuum Technologies........................... 66.7 48.7 10.3 (0.4)
Electronics Manufacturing..................... 74.3 46.4 5.7 2.4
------------ ----------- --------------- ---------------
Total industry segments....................... 337.3 282.2 38.3 (7.3)
General corporate............................. -- -- (6.7) (3.3)
Interest (exp.)/inc., net..................... -- -- (1.2) 0.3
------------ ----------- --------------- ---------------
Total......................................... $ 337.3 $ 282.2 $ 30.4 $ (10.3)
=========== ========== =============== ===============

NOTE 12. STOCK REPURCHASE PROGRAM

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

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

NOTE 13. EMPLOYEE STOCK PURCHASE PLAN

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

NOTE 14. RECENT ACCOUNTING PRONOUNCEMENTS

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

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

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

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

RESULTS OF OPERATIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

The Distribution Agreement provides that the Company is responsible for
certain litigation to which VAI was a party, and further provides that the
Company will indemnify VMS and VSEA for one-third of the costs, expenses, and
other liabilities relating to certain discontinued, former, and corporate
operations of VAI, including certain environmental liabilities (see
"Environmental Matters" and "Legal Proceedings" below).

The Company's liquidity is affected by many other factors, some based on
the normal ongoing operations of the business and others related to the
uncertainties of the industry and global economies. Although the Company's cash
requirements will fluctuate based on the timing and extent of these factors,
management believes that cash generated from operations, together with the
Company's borrowing capability, will be sufficient to satisfy commitments for
capital expenditures and other cash requirements for fiscal year 2000.

ENVIRONMENTAL MATTERS

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

In addition, under the Distribution Agreement, the Company and VSEA each
agreed to indemnify VMS for one-third of certain environmental investigation and
remediation costs (after adjusting for any insurance proceeds and tax benefits
recognized or realized by VMS for such costs), as further described below.

expected to be incurred varies with each site and facility, ranging up to
approximately 30 years as of March 31, 2000. No amount in the foregoing range of
estimated future costs is believed to be more probable of being incurred than
any other amount in such range, and the Company therefore accrued $4.5 million
as of March 31, 2000.

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

LEGAL PROCEEDINGS

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

YEAR 2000

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

RECENT ACCOUNTING PRONOUNCEMENTS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

FORWARD EXCHANGE CONTRACTS OUTSTANDING AS OF MARCH 31, 2000

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

INTEREST RATE RISK

The Company has no material exposure to market risk for changes in interest
rates. The Company invests primarily in short-term U.S. Treasury securities, and
changes in interest rates would not be material to the Company's financial
condition or results of operations. The Company primarily enters into debt
obligations to support general corporate purposes, including working capital
requirements, capital expenditures, and acquisitions. At March 31, 2000 the
Company's debt obligations had fixed interest rates.

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

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

DEBT OBLIGATIONS

PRINCIPAL AMOUNTS AND RELATED WEIGHTED AVERAGE INTEREST RATES BY YEAR OF
MATURITY

SIX
MONTHS
ENDED FISCAL YEARS
SEP. 29, --------------------------------------------------
(IN THOUSANDS) 2000 2001 2002 2003 2004 2005 THEREAFTER TOTAL
------- ------ ------- ------ ------- ------- --------- ---------

Long-term debt
(including current
portion)........... $3,360 $6,397 $6,438 $2,974 $2,755 $2,500 $ 30,000 $ 54,424
Average interest
rate............ 7.0% 6.9% 6.9% 6.3% 6.7% 7.2% 6.8% 6.8%

PART II
OTHER INFORMATION

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

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

EXHIBIT
NO. DESCRIPTION
-------- ----------------

10.1* Varian, Inc. Employee Stock Purchase Plan.
10.2* Amended and Restated Change in Control Agreement, dated as of February 25, 2000, Between
Registrant and Sergio Piras.
10.3* Amended and Restated Change in Control Agreement, dated as of February 25, 2000, Between
Registrant and C. Wilson Rudd.
27.1 Financial Data Schedule.

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

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

None.

SIGNATURES

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

VARIAN, INC.
(Registrant)

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

Dated: May 10, 2000

INDEX TO EXHIBITS

EXHIBIT
NO. DESCRIPTION
-------- ----------------

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