VARIAN MEDICAL SYSTEMS INC (Form: 10-Q, Received: 05/08/2012 16:17:10)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 30, 2012

¨	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 1-7598

VARIAN MEDICAL SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


Delaware		94-2359345
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
		(I.R.S. Employer Identification Number)

3100 Hansen Way,
Palo Alto, California		94304-1030
(Address of principal executive offices)		(Zip Code)

(650) 493-4000

(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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 111,503,830 shares of common stock, par value $1 per share, outstanding as of April 27, 2012.

VARIAN MEDICAL SYSTEMS, INC.

FORM 10-Q for the Quarter Ended March 30, 2012

INDEX


Part I.	Financial Information	3

Item 1.	Unaudited Financial Statements

	Condensed Consolidated Statements of Earnings	3

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Cash Flows	5

	Notes to the Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52

Item 4.	Controls and Procedures	53

Part II.	Other Information	54

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76

Item 3.	Defaults Upon Senior Securities	76

Item 4.	Mine Safety Disclosures	76

Item 5.	Other Information	76

Item 6.	Exhibits	77

Signatures		78

Index to Exhibits		79

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)


	Three Months Ended						Six Months Ended
(In thousands, except per share amounts)	March 30, 2012			April 1, 2011			March 30, 2012			April 1, 2011
Revenues:
Product	$	546,807		$	498,743		$	1,003,604		$	930,537
Service contracts and other		173,467			149,712			342,008			297,770

Total revenues		720,274			648,455			1,345,612			1,228,307

Cost of revenues:

Product		337,620			278,953			612,623			526,393
Service contracts and other		85,958			80,508			167,534			146,081


Total cost of revenues		423,578			359,461			780,157			672,474

Gross margin		296,696			288,994			565,455			555,833

Operating expenses:
Research and development		47,067			43,873			90,832			82,375
Selling, general and administrative		105,830			93,924			201,905			185,234


Total operating expenses		152,897			137,797			292,737			267,609

Operating earnings		143,799			151,197			272,718			288,224
Interest income		1,109			809			2,259			1,438
Interest expense		(707	)		(809	)		(1,536	)		(1,364	)


Earnings from operations before taxes		144,201			151,197			273,441			288,298
Taxes on earnings		36,429			48,118			75,435			88,730


Net earnings	$	107,772		$	103,079		$	198,006		$	199,568

Net earnings per share—basic	$	0.96		$	0.87		$	1.76		$	1.69

Net earnings per share—diluted	$	0.94		$	0.86		$	1.73		$	1.66


Shares used in the calculation of net earnings per share:
Weighted average shares outstanding—basic		112,354			117,959			112,282			117,896

Weighted average shares outstanding—diluted		114,513			120,386			114,428			120,336

See accompanying notes to the condensed consolidated financial statements.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands, except par values)	March 30, 2012			September 30, 2011 ⁽¹⁾
Assets
Current assets:
Cash and cash equivalents	$	616,727		$	564,457
Short-term investment		31,624			19,205
Accounts receivable, net of allowance for doubtful accounts of $6,935 at March 30, 2012 and $6,034 at September 30, 2011		637,402			635,153
Inventories		444,800			409,962
Prepaid expenses and other current assets		136,575			111,875
Deferred tax assets		113,142			113,965


Total current assets		1,980,270			1,854,617

Property, plant and equipment, net		282,239			285,894
Goodwill		214,547			212,452
Other assets		186,114			145,798


Total assets	$	2,663,170		$	2,498,761

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	142,635		$	154,946
Accrued expenses		273,120			290,009
Product warranty		48,605			50,128
Deferred revenues		142,068			140,173
Advance payments from customers		339,859			299,380
Short-term borrowings		149,269			181,400
Current maturities of long-term debt		6,250			9,876


Total current liabilities		1,101,806			1,125,912
Long-term debt		6,250			6,250
Other long-term liabilities		119,131			122,708


Total liabilities		1,227,187			1,254,870

Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock of $1 par value: 1,000 shares authorized; none issued and outstanding		—			—
Common stock of $1 par value: 189,000 shares authorized; 111,805 and 112,344 shares issued and outstanding at March 30, 2012 and at September 30, 2011, respectively		111,805			112,344
Capital in excess of par value		570,138			500,922
Retained earnings		798,996			677,473
Accumulated other comprehensive loss		(44,956	)		(46,848	)


Total stockholders’ equity		1,435,983			1,243,891


Total liabilities and stockholders’ equity	$	2,663,170		$	2,498,761

(1)	The condensed consolidated balance sheet as of September 30, 2011 was derived from audited financial statements as of that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

See accompanying notes to the consolidated financial statements.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
(In thousands)	March 30, 2012			April 1, 2011
Cash flows from operating activities:
Net earnings	$	198,006		$	199,568
Adjustments to reconcile net earnings to net cash provided by operating activities:
Share-based compensation expense		25,139			26,104
Tax benefits from exercises of share-based payment awards		4,881			19,010
Excess tax benefits from share-based compensation		(6,144	)		(17,486	)
Depreciation		26,329			23,977
Amortization of intangible assets		1,716			1,573
Deferred taxes		(705	)		6,546
Provision for doubtful accounts receivable		2,169			162
Loss (Income) on equity investment in affiliate		503			(4,213	)
Other		(913	)		(74	)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable		(25,788	)		29,997
Inventories		(28,985	)		(53,169	)
Prepaid expenses and other current assets		(32,718	)		(19,771	)
Accounts payable		(13,192	)		2,567
Accrued expenses		(24,446	)		(28,857	)
Deferred revenues		(1,272	)		879
Product warranty		(1,526	)		(4,070	)
Advance payments from customers		40,523			28,955
Other long-term liabilities		(4,954	)		(5,670	)


Net cash provided by operating activities		158,623			206,028

Cash flows from investing activities:
Purchases of property, plant and equipment		(22,225	)		(38,639	)
Investment in debt security		(12,419	)		—
Acquisition of businesses, net of cash acquired		(9,832	)		(8,099	)
(Increase) decrease in cash surrender value of life insurance		(2,201	)		373
Note repayment from affiliate and other, net		3,360			606
Other, net		539			(2,061	)


Net cash used in investing activities		(42,778	)		(47,820	)

Cash flows from financing activities:
Repurchases of common stock		(75,399	)		(238,000	)
Equity forward contracts		—			(68,063	)
Proceeds from issuance of common stock to employees		41,816			104,867
Excess tax benefits from share-based compensation		6,144			17,486
Employees’ taxes withheld and paid for restricted stock and restricted stock units		(4,374	)		(9,326	)
Net borrowings (repayments) under line of credit agreements		(30,793	)		99,969
Repayments of bank borrowings		(3,626	)		(135	)
Other		(49	)		—


Net cash used in financing activities		(66,281	)		(93,202	)


Effects of exchange rate changes on cash and cash equivalents		2,706			(838	)

Net increase in cash and cash equivalents		52,270			64,168

Cash and cash equivalents at beginning of period		564,457			520,221

Cash and cash equivalents at end of period	$	616,727		$	584,389

Supplemental information:

VMS common stock valued at $25 million was received in the six months ended March 30, 2012 upon settlement of the August 2011 Repurchase Agreement (see Note 12).

See accompanying notes to the condensed consolidated financial statements.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Varian Medical Systems, Inc. (“VMS”) and subsidiaries (collectively, the “Company”) designs, manufactures, sells and services equipment and software products for treating cancer with radiotherapy, stereotactic radiosurgery, stereotactic body radiotherapy and brachytherapy. The Company also designs, manufactures, sells and services X-ray tubes for original equipment manufacturers (“OEMs”); replacement X-ray tubes; and flat panel digital image detectors for filmless x-rays imaging in medical, dental, veterinary, scientific and industrial applications. It designs, manufactures, sells and services linear accelerators, digital image detectors, image processing software and image detection products for security and inspection purposes. The Company also develops, designs, manufacturers, sells and services proton therapy products and systems for cancer treatment.

Basis of Presentation

The condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual 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. These condensed consolidated financial statements and the accompanying notes are unaudited and should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2011 (the “2011 Annual Report”). In the opinion of management, the condensed consolidated financial statements herein include adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Company’s financial position as of March 30, 2012 and September 30, 2011, results of operations for the three and six months ended March 30, 2012 and April 1, 2011, and cash flows for the six months ended March 30, 2012 and April 1, 2011. The results of operations for the three and six months ended March 30, 2012 are not necessarily indicative of the operating results to be expected for the full fiscal year or any future period.

Fiscal Year

The fiscal years of the Company as reported are the 52- or 53- week periods ending on the Friday nearest September 30. Fiscal year 2012 is the 52-week period ending September 28, 2012, and fiscal year 2011 was the 52-week period that ended on September 30, 2011. The fiscal quarters ended March 30, 2012 and April 1, 2011 were both 13-week periods.

Principles of Consolidation

The consolidated financial statements include those of VMS and its subsidiaries. Intercompany balances, transactions and stock holdings have been eliminated in consolidation.

Use of Estimates

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.

Investments in Privately Held Companies

Equity investments in privately held companies in which the Company holds at least a 20% ownership interest or in which the Company has the ability to exercise significant influence are accounted for by the equity method. Equity investments in privately held companies in which the Company holds less than a 20% ownership interest and does not have the ability to exercise significant influence are accounted for under the cost method. Equity investments accounted for under the cost method totaled $21.4 million at both March 30, 2012 and September 30, 2011. The Company’s equity investments in privately held companies are included in “Other assets” in the Consolidated Balance Sheets. The Company monitors these equity investments for impairment and makes appropriate reductions in carrying values if the Company determines that

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

impairment charges are required based primarily on the financial condition and near-term prospects of these companies. The Company did not have any impairment loss on equity investments in privately held companies during both the three and six months ended March 30, 2012 and April 1, 2011.

Reclassifications

Certain items in the condensed consolidated statements of cash flows have been reclassified to conform to the current fiscal year’s format. These reclassifications had no impact on previously reported total net earnings.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) amended Accounting Standard Codification (“ASC”) 210, “Balance Sheet,” enhancing disclosure requirements about the nature of an entity’s right to offset and related arrangements associated with its financial instruments and derivative instruments. The new guidance requires the disclosure of the gross amounts subject to rights of set-off, the amounts offset in accordance with the accounting standards followed, and the related net exposure. The new guidance will be effective for the Company beginning in the first quarter of fiscal year 2014. The adoption of this amendment concerns disclosure only and the Company does not expect it to have an impact on its consolidated financial position, results of operations or cash flows.

In September 2011, the FASB amended ASC 350, “Intangibles – Goodwill and Other.” This amendment is intended to simplify how an entity tests goodwill for impairment and will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that the reporting unit’s fair value is less than its carrying amount. The amendment will be effective for the Company beginning in the first quarter of fiscal 2013 and early adoption is permitted. The Company does not expect this amendment to have a material impact on its consolidated financial position, results of operations and cash flows.

In June 2011, the FASB amended ASC 220, “Presentation of Comprehensive Income.” This amendment will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. In December 2011, the FASB issued another amendment which defers indefinitely this amendment to the extent it relates to the presentation of reclassification adjustments. The amended guidance, which must be applied retroactively, will be effective for the Company in the first quarter of fiscal year 2013. The adoption of this amendment concerns disclosure only and the Company does not expect it to have an impact on its consolidated financial position, results of operations or cash flows.

In May 2011, the FASB amended ASC 820, “Fair Value Measurement.” This amendment is intended to result in convergence between GAAP and International Financial Reporting Standards requirements for measurement of and disclosures about fair value. This guidance clarifies the application of existing fair value measurements and disclosures, and changes certain principles or requirements for fair value measurements and disclosures. The adoption of this amendment in the second quarter of fiscal year 2012 affected the Company’s disclosure only and did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

2. BALANCE SHEET COMPONENTS:


(in millions)	March 30, 2012		September 30, 2011
*Short-term Investment:*
Corporate debt security:
Amortized cost	$	31.6	$	19.2
Unrealized gain (loss)		—		—

Fair value	$	31.6	$	19.2

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

The short-term investment, which represents a loan to California Proton Treatment Center, LLC (“CPTC”), is classified as available-for-sale corporate debt security. See Note 15, “Variable Interest Entity.” The Company did not sell any portion of its short-term investment during the three and six months ended March 30, 2012.

The components of inventories were as follows:


	March 30, 2012		September 30, 2011
(In millions)
*Inventories:*
Raw materials and parts	$	226.6	$	231.9
Work-in-progress		80.5		54.5
Finished goods		137.7		123.6

Total inventories	$	444.8	$	410.0

The components of other long-term liabilities were as follows:


(In millions)	March 30, 2012		September 30, 2011
*Other long-term liabilities:*
Long-term income taxes payable	$	42.6	$	44.8
Other		76.5		77.9

Total other long-term liabilities	$	119.1	$	122.7

3. FAIR VALUE

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. There is a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

Assets/Liabilities Measured at Fair Value on a Recurring Basis

In the tables below, the Company has segregated all assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.


	Fair Value Measurement Using
Type of Instruments	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Balance
(In millions)

Assets at March 30, 2012:
Money market funds	$	29.0	$	—	$	—		$	29.0
Derivative assets		—		1.5		—			1.5
Option to purchase a company		—		—		1.4			1.4
Corporate debt security		—		—		31.6			31.6

Total assets measured at fair value	$	29.0	$	1.5	$	33.0		$	63.5


Liabilities at March 30, 2012:
Contingent consideration	$	—	$	—	$	(5.0	)	$	(5.0	)

Total liabilities measured at fair value	$	—	$	—	$	(5.0	)	$	(5.0	)


Assets at September 30, 2011:
Money market funds	$	1.3	$	—	$	—		$	1.3
Option to purchase a company		—		—		1.4			1.4
Corporate debt security		—		—		19.2			19.2

Total assets measured at fair value	$	1.3	$	—	$	20.6		$	21.9


Liabilities at September 30, 2011:
Contingent consideration	$	—	$	—	$	(0.1	)	$	(0.1	)

Total liabilities measured at fair value	$	—	$	—	$	(0.1	)	$	(0.1	)

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)


	Fair Value Measurement Using
Line Item in Consolidated Balance Sheet	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total Balance
(In millions)
Assets at March 30, 2012:
Cash and cash equivalents	$	27.9	$	—	$	—		$	27.9
Short-term investment		—		—		31.6			31.6
Prepaid expenses and other current assets		—		1.5		—			1.5
Other assets		1.1		—		1.4			2.5

Total assets measured at fair value	$	29.0	$	1.5	$	33.0		$	63.5


Liabilities at March 30, 2012:
Accrued liabilities	$	—	$	—	$	(0.4	)	$	(0.4	)
Other long-term liabilities		—		—		(4.6	)		(4.6	)

Total liabilities measured at fair value	$	—	$	—	$	(5.0	)	$	(5.0	)


Assets at September 30, 2011:
Cash and cash equivalents	$	0.2	$	—	$	—		$	0.2
Short-term investment		—		—		19.2			19.2
Other assets		1.1		—		1.4			2.5

Total assets measured at fair value	$	1.3	$	—	$	20.6		$	21.9


Liabilities at September 30, 2011:
Other long-term liabilities	$	—	$	—	$	(0.1	)	$	(0.1	)

Total liabilities measured at fair value	$	—	$	—	$	(0.1	)	$	(0.1	)

The Company obtains Level 1 instrument valuations from quotes for transactions in active exchange markets involving identical assets.

The Company’s valuation of its Level 2 instruments includes valuations obtained from quoted prices for identical assets in markets that are not active. In addition, the Company has elected to use the income approach to value its derivative instruments using standard valuation techniques and Level 2 inputs, such as currency spot rates, forward points and credit default swap spreads. The Company’s derivative instruments are short-term in nature, typically one month to twelve months in duration.

The Company measures the fair value of its Level 3 contingent consideration liabilities based on the income approach by using a Monte Carlo simulation model with key assumptions that include estimated sales units of an acquired business during the earn-out period and estimated discount rates corresponding to the periods of expected payments. The estimated sales units used in the Monte Carlo simulation model range from 69 to 193 units during the earn-out period. The estimated discount rates used range from 0.13% to 0.42%. If the estimated sales units were to increase or decrease during the earn-out period, the fair value of the contingent consideration would increase or decrease, respectively. If the estimated discount rates used were to increase or decrease, the fair value of the contingent consideration would decrease or increase, respectively.

The Company’s Level 3 corporate debt security is valued based on the income approach using key assumptions that include estimated probabilities of default by the counterparty and the London Interbank Offered Rate (“LIBOR”). As of March 30, 2012, the estimated probability of default by the counterparty was 0%. If the probability of default were to increase, the fair value of the corporate debt security would decrease.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

The fair value of the option to purchase a company, a Level 3 asset, is based on the income approach using key assumptions that include projected operating results of the company and an estimated discount rate corresponding to the period of expected payment.

The following table presents the reconciliation for all assets and liabilities measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3):


(In millions)	Corporate Debt Security		Contingent Consideration			Option to Purchase a Company
Balance at September 30, 2011	$	19.2	$	(0.1	)	$	1.4
Purchases		6.1		(4.9	)		—

Balance at December 30, 2011		25.3		(5.0	)		1.4
Purchases		6.3		—			—

Balance at March 30, 2012	$	31.6	$	(5.0	)	$	1.4

There were no transfers of assets or liabilities between fair value measurement levels during either the three and six months ended March 30, 2012 or the three and six months ended April 1, 2011. Transfers between fair value measurement levels are recognized at the end of the reporting period.

Fair Value of Other Financial Instruments

In the table below, the Company has segregated the fair value of certain financial instruments that are not measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.


	Fair Value Measurement Using
Type of Instruments	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Balance
(In millions)
At March 30, 2012:
Bank deposits (included in “Cash and cash equivalents”)	$	588.8	$	—		$	—	$	588.8
Short-term borrowings		—		(149.3	)		—		(149.3	)
Long-term debt		—		(13.3	)		—		(13.3	)

At September 30, 2011:
Bank deposits (included in “Cash and cash equivalents”)	$	564.3	$	—		$	—	$	564.3
Short-term borrowings		—		(181.4	)		—		(181.4	)
Long-term debt		—		(17.2	)		—		(17.2	)

The fair values of certain of the Company’s financial instruments that are not measured at fair value, including bank deposits, short-term borrowings, accounts payable and accounts receivable, net of allowance for doubtful accounts, approximate their carrying amounts due to their short maturities.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

The estimated fair value of long-term debt was based on the then-current rates available to the Company for debt of similar terms and remaining maturities and also took into consideration default and credit risk. The Company determined the estimated fair value amount by using available market information and commonly accepted valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value.

4. FINANCING RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

A financing receivable is a contractual right to receive money, on demand or on fixed or determinable dates, that is recognized as an asset in the creditor’s balance sheet. The Company’s financing receivables, consisting of its accounts receivable with contractual maturities of more than one year and the related allowance for doubtful accounts, notes receivable and short-term investment, are presented in the following table:


(In millions)	March 30, 2012		September 30, 2011
Accounts receivable with contractual maturities of more than one year:
Gross amount	$	30.8	$	16.2
Allowance for doubtful accounts		—		—

Net amount	$	30.8	$	16.2

Amount past due	$	0.6	$	1.2

Note receivable:
Note receivable from related party	$	5.4	$	8.8

Total note receivable	$	5.4	$	8.8

Amount past due	$	—	$	—

Short-term investment:
Total short-term investment ¹	$	31.6	$	19.2

Amount past due	$	—	$	—

¹	Represents a loan to CPTC. See Note 15, “Variable Interest Entity.”

During the three and six months ended March 30, 2012, the Company sold $2.3 million and $7.5 million, respectively, of accounts receivable with contractual maturities of more than one year. There was no activity in the allowance for doubtful financing receivable accounts during the three and six months ended March 30, 2012.

5. GOODWILL AND INTANGIBLE ASSETS

The following table reflects the gross carrying amount and accumulated amortization of the Company’s intangible assets included in “Other assets” in the Condensed Consolidated Balance Sheets as follows:


(In millions)	March 30, 2012			September 30, 2011
*Intangible Assets:*
Acquired existing technology	$	31.7		$	26.0
Patents, licenses and other		21.8			19.6
Customer contracts and supplier relationship		10.5			10.4
Accumulated amortization		(45.5	)		(43.7	)

Net carrying amount	$	18.5		$	12.3

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

Amortization expense for intangible assets was $0.8 million for both the three months ended March 30, 2012 and April 1, 2011, respectively, and $1.7 million and $1.6 million for the six months ended March 30, 2012 and April 1, 2011, respectively. The Company estimates amortization expense on a straight-line basis for the remaining six months of fiscal year 2012, fiscal year 2013, fiscal year 2014, fiscal year 2015, fiscal year 2016 and thereafter, will be as follows (in millions): $1.5, $2.9, $2.0, $1.7 and $10.4, respectively.

The following table reflects the activity of goodwill by reportable operating segment:


(In millions)	Oncology Systems		X-ray Products		Other			Total
Balance at September 30, 2011	$	130.5	$	6.1	$	75.9		$	212.5
Acquisition of a business		2.5		—		—			2.5
Foreign currency translation adjustments		—		—		(0.5	)		(0.5	)

Balance at March 30, 2012	$	133.0	$	6.1	$	75.4		$	214.5

6. RELATED PARTY TRANSACTIONS

VMS has a 40% ownership interest in dpiX Holding LLC (“dpiX Holding”), a two-member consortium which has a 100% ownership interest in dpiX LLC (“dpiX”), a supplier of amorphous silicon based thin-film transistor arrays (“flat panels”) for the Company’s X-ray Products’ digital image detectors and for its Oncology Systems’ On-Board Imager ^® (“OBI”), and PortalVision ^TM imaging products. In accordance with the dpiX Holding agreement, net losses were to be allocated to the members, in succession, until their capital accounts equaled zero, then to the members in accordance with their ownership interests. The dpiX Holding agreement also provided that net profits were to be allocated to the members, in succession, until their capital accounts equaled the net losses previously allocated, then to the members in accordance with their ownership interests.

The equity investment in dpiX Holding is accounted for under the equity method of accounting. When VMS recognizes its share of net profits or losses of dpiX Holding, profits or losses in inventory purchased from dpiX are eliminated until realized by VMS. VMS recorded a loss on the equity investment in dpiX Holding of $1.4 million in the three months ended March 30, 2012 and income of $2.0 million in the three months ended April 1, 2011. VMS recorded a loss on the equity investment in dpiX Holding of $0.5 million in the six months ended March 30, 2012 and income of $4.2 million in the six months ended April 1, 2011. Income and loss on the equity investment in dpiX Holding are included in “Selling, general and administrative” expenses in the Condensed Consolidated Statements of Earnings. The carrying value of the equity investment in dpiX Holding, which was included in “Other assets” in the Condensed Consolidated Balance Sheets, was $43.9 million at March 30, 2012 and $46.7 million at September 30, 2011.

VMS entered into a loan agreement with dpiX in February 2009, which was amended in December 2011, under which VMS had loaned $8.8 million to dpiX. The loan bears interest at prime plus 1% per annum. Interest is payable in full according to a quarterly schedule that began in April 2009. The principal balance is due and payable to VMS in installments, of which $3.4 million was due and paid in December 2011 and the balance, together with accrued and unpaid interest and all other related amounts payable, is due and payable on or before December 31, 2013. As of March 30, 2012, the amount outstanding under this loan agreement was $5.4 million, which was included in “Other assets” in the Condensed Consolidated Balance Sheet. As of September 30, 2011, the amount outstanding under this loan agreement was $8.8 million, which was included in “Prepaid expenses and other current assets” in the Condensed Consolidated Balance Sheets. The Company evaluates the collectability of its note receivable with dpiX at least on a quarterly basis, considering the timeliness of recurring payments, as well as its financial position and cash flows, and would recognize an impairment loss for any amount the Company deemed uncollectible.

During the three months ended March 30, 2012 and April 1, 2011, the Company purchased glass transistor arrays from dpiX totaling approximately $2.6 million and $5.6 million, respectively. Glass transistor arrays purchased from dpiX totaled approximately $8.0 million for the six months ended March 30, 2012 and $12.2 million for the six months ended April 1, 2011. These purchases of glass transistor arrays are included as a component of “Inventory” in the Condensed Consolidated Balance Sheets and “Cost of revenues—product” in the Condensed Consolidated Statements of Earnings for these periods.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

7. CREDIT FACILITY

As of March 30, 2012, VMS has a credit agreement with Bank of America, N.A. (“BofA”). As amended to date, the credit agreement with BofA provided for a revolving credit facility that enables the Company to borrow and have outstanding at any given time a maximum of $300 million (the “Amended BofA Credit Facility”). A portion of the Amended BofA Credit Facility was collateralized with a pledge of stock of certain of VMS’s present and future subsidiaries that were deemed to be material subsidiaries. As of March 30, 2012, VMS had pledged to BofA 65% of the voting shares that it holds in Varian Medical Systems Nederland B.V., a wholly-owned subsidiary.

Under the Amended BofA Credit Facility, VMS’s Japanese subsidiary (“VMS KK”) could borrow up to 2.7 billion Japanese yen as part of the overall credit facility (the “Japanese Line of Credit”). At any time amounts were outstanding under the Japanese Line of Credit, the full borrowing capacity was deemed committed for use in Japan and therefore the maximum amount VMS could otherwise borrow under the Amended BofA Credit Facility was reduced by $35 million to $265 million. VMS guarantees the payment of the outstanding balance under the Japanese Line of Credit. The Amended BofA Credit Facility, including the Japanese Line of Credit, terminated on April 27, 2012, and was replaced with a new credit agreement between VMS, certain lenders that are a party thereto, and BofA as administrative agent. At that time, the Company paid with a draw from the new credit facility the then outstanding balance of approximately $100 million under the Amended BofA Credit Facility. See Note 18, “Subsequent Events.”

The Amended BofA Credit Facility could be used for working capital, capital expenditures, permitted VMS share repurchases, permitted acquisitions and other lawful corporate purposes. Borrowings under the Japanese Line of Credit could be used by VMS KK for refinancing certain intercompany debts, working capital, capital expenditures and other lawful corporate purposes. Borrowings under the Amended BofA Credit Facility (outside of the Japanese Line of Credit) accrued interest either (i) based on the LIBOR plus a margin of 0.75% to 1.25% per annum based on a leverage ratio involving funded indebtedness and earnings before interest, taxes, depreciation and amortization (“EBITDA”) or (ii) based upon a base rate of either the federal funds rate plus 0.5% or BofA’s announced prime rate, whichever was greater, minus a margin of 0.5% to 0% per annum based on a leverage ratio involving funded indebtedness and EBITDA, depending upon the Company’s instructions to BofA. The Company could select borrowing periods of one, two, three or six months for advances based on the LIBOR rate. Interest rates on advances based on the base rate were adjustable daily. Under the Amended BofA Credit Facility, the Company paid commitment fees at an annual rate of 0.2% to 0.3% based on a leverage ratio involving funded indebtedness and EBITDA. Borrowings under the Japanese Line of Credit accrued interest at the basic loan rate announced by the Bank of Japan plus a margin of 1.25% to 1.50% per annum based on a leverage ratio involving funded indebtedness and EBITDA.

At March 30, 2012, a total of $125 million was outstanding under the Amended BofA Credit Facility with a weighted average interest rate of 0.99%, none of which was outstanding under the Japanese Line of Credit. At September 30, 2011, a total of $181 million was outstanding under the Amended BofA Credit Facility with a weighted average interest rate of 1.05%, none of which was outstanding under the Japanese Line of Credit. Up to $25 million of the Amended BofA Credit Facility could be used to support letters of credit issued on behalf of the Company, of which none were outstanding as of March 30, 2012 or September 30, 2011.

The Amended BofA Credit Facility contained customary affirmative and negative covenants for facilities of this type. The Company also agreed to maintain certain financial covenants relating to (i) leverage ratios involving funded indebtedness and EBITDA, (ii) liquidity and (iii) consolidated assets. For all periods presented within these condensed consolidated financial statements, the Company was in compliance with all covenants.

In addition, VMS KK has an unsecured uncommitted credit agreement with Sumitomo Mitsui Banking Corporation that enables VMS KK to borrow and have outstanding at any given time a maximum of 3 billion Japanese yen (the “Sumitomo Credit Facility”). The Sumitomo Credit Facility will expire on February 28, 2013. Borrowings under the Sumitomo Credit Facility accrue interest based on the basic loan rate announced by the Bank of Japan plus a margin of 0.5% per annum. As of March 30, 2012, 2 billion Japanese yen, or approximately $24.3 million, was outstanding under the Sumitomo Credit Facility with a weighted average interest rate of 0.67%.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company measures all derivatives at fair value on the Condensed Consolidated Balance Sheets. The accounting for gains or losses resulting from changes in the fair value of those derivatives depends upon the use of the derivative and whether it qualifies for hedge accounting. Changes in the fair value of derivatives that do not qualify for hedge accounting treatment must be recognized in earnings, together with elements excluded from effectiveness testing and the ineffective portion of a particular hedge.

The fair values of derivative instruments reported on the Company’s Condensed Consolidated Balance Sheets were as follows:


	Asset Derivatives					Liability Derivatives
	Balance Sheet	March 30, 2012		September 30, 2011		Balance Sheet	March 30, 2012		September 30, 2011
(In millions)	Location	Fair Value		Fair Value		Location	Fair Value		Fair Value
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expenses and other current assets	$	1.1	$	—	Accrued liabilities	$	—	$	—
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expenses and other current assets		0.4		—	Accrued liabilities		—		—

Total derivatives		$	1.5	$	—		$	—	$	—

See Note 3, “Fair Value” regarding valuation of the Company’s derivative instruments. Also see Note 1, “Significant Accounting Policies” to the Consolidated Financial Statements of the Company’s 2011 Annual Report regarding credit risk associated with the Company’s derivative instruments.

Cash Flow Hedging Activities

The Company has many transactions denominated in foreign currencies and addresses certain of those financial exposures through a risk management program that includes the use of derivative financial instruments. The Company sells products throughout the world, often in the currency of the customer’s country, and may hedge certain of the larger foreign currency transactions when they are either not denominated in the relevant subsidiary’s functional currency or the U.S. dollar. These foreign currency sales transactions are hedged using foreign currency forward contracts. The Company may use other derivative instruments in the future. The Company enters into foreign currency forward contracts primarily to reduce the effects of fluctuating foreign currency exchange rates. The Company does not enter into foreign currency forward contracts for speculative or trading purposes. The foreign currency forward contracts range from one to twelve months in maturity. As of March 30, 2012, the Company did not have any foreign currency forward contracts with an original maturity greater than twelve months.

The hedges of foreign currency denominated forecasted revenues are accounted for in accordance with ASC 815, pursuant to which the Company has designated its hedges of forecasted foreign currency revenues as cash flow hedges. The Company’s designated cash flow hedges de-designate when the anticipated revenues associated with the transactions are recognized and the effective portion in “Accumulated other comprehensive (loss)” in the Condensed Consolidated Balance Sheets is reclassified to “Revenues” in the Condensed Consolidated Statements of Earnings. Subsequent changes in fair value of the derivative instrument are recorded in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Earnings to offset changes in fair value of the resulting non-functional currency receivables. For derivative instruments that are designated and qualify as cash flow hedges under ASC 815, the Company formally documents for each

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

derivative instrument at the hedge’s inception the relationship between the hedging instrument (foreign currency forward contract) and hedged item (forecasted foreign currency revenues), the nature of the risk being hedged, as well as its risk management objective and strategy for undertaking the hedge. The Company records the effective portion of the gain or loss on the derivative instrument designated and qualify as cash flow hedges in “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheets and reclassifies these amounts into “Revenues” in the Condensed Consolidated Statements of Earnings in the period during which the hedged transaction is recognized in earnings. The Company assesses hedge effectiveness both at the onset of the hedge and on an ongoing basis using regression analysis. The Company measures hedge ineffectiveness by comparing the cumulative change in the fair value of the effective component of the hedge contract with the cumulative change in the fair value of the hedged item. The Company recognizes any over performance of the derivative as ineffectiveness in “Revenues,” and amounts not included in the assessment of effectiveness in “Cost of revenues” in the Condensed Consolidated Statements of Earnings. During the three and six months ended March 30, 2012 and April 1, 2011, the Company did not discontinue any cash flow hedges. At the inception of the hedge, the Company assesses whether the likelihood of meeting the forecasted cash flow is highly probable. As of March 30, 2012, all forecasted cash flows were still probable to occur. As of September 30, 2011, net unrealized loss on derivative instruments before tax, of $11,000, was included in “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheets. As of March 30, 2012, net unrealized gain on derivative instruments, before tax, of $1.1 million, was included in “Accumulated other comprehensive loss,” and is expected to be reclassified to earnings over the twelve months that follow.

The Company had the following outstanding foreign currency forward contracts that were entered into to hedge forecasted revenues:


	Notional Value Sold
(In millions)	March 30, 2012
Japanese yen	$	17.0

The following table presents the amounts, before tax, recognized in “Accumulated other comprehensive income (loss)” on the Condensed Consolidated Balance Sheets and in the Condensed Consolidated Statements of Earnings that are related to the effective portion of the foreign currency forward contracts designated as cash flow hedges:


	Gain (Loss) Recognized in Other Comprehensive Income (Effective Portion)									Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Net Earnings (Effective Portion)	Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Net Earnings (Effective Portion)
	Three Months Ended				Six Months Ended						Three Months Ended					Six Months Ended
(In millions)	March 30, 2012		April 1, 2011		March 30, 2012		April 1, 2011				March 30, 2012		April 1, 2011			March 30, 2012		April 1, 2011
Foreign exchange contracts	$	1.3	$	—	$	1.2	$	(0.5	)	Revenues	$	0.2	$	(0.4	)	$	0.1	$	(1.0	)

Balance Sheet Hedging Activities

The Company also hedges balance sheet exposures from its various subsidiaries and business units where the U.S. dollar is the functional currency. The Company enters into foreign currency forward contracts to minimize the short-term impact of foreign currency fluctuations on monetary assets and liabilities denominated in currencies other than the U.S. dollar functional currency. The foreign currency forward contracts are short term in nature, typically with a maturity of approximately one month, and are based on the net forecasted balance sheet exposure. These hedges of foreign-currency-denominated assets and liabilities do not qualify for hedge accounting treatment and are not designated as hedging instruments under ASC 815. For derivative instruments not designated as hedging instruments, changes in their fair values are recognized in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Earnings.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

Changes in the values of these hedging instruments are offset by changes in the values of foreign-currency-denominated assets and liabilities. Variations from the forecasted foreign currency assets or liabilities, coupled with a significant currency rate movement, may result in a material gain or loss if the hedges are not effectively offsetting the change in value of the foreign currency asset or liability. Other than foreign exchange hedging activities, the Company has no other free-standing or embedded derivative instruments.

The Company had the following outstanding foreign currency forward contracts that were either (i) entered into to hedge balance sheet exposures from its various foreign subsidiaries and business units or (ii) originally designated as cash flow hedges (primarily in Japanese yen) and were subsequently de-designated when the forecasted revenues were recognized:


	At March 30, 2012
(In millions)	Notional Value Sold		Notional Value Purchased
Australian dollar	$	27.8	$	—
Canadian dollar		—		3.2
Danish krona		—		3.1
Euro		158.2		0.3
Indian rupee		3.8		—
Japanese yen		48.3		—
New Zealand dollar		2.3		—
Norwegian krone		5.4		—
Singapore dollar		3.6		—
Swedish krona		8.7		—
Swiss franc		—		53.1

Totals	$	258.1	$	59.7

The following table presents the gains (losses) recognized in the Condensed Consolidated Statements of Earnings related to the foreign currency forward exchange contracts that are not designated as hedging instruments under ASC 815.


Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Net Earnings on Derivative					Amount of Gain or (Loss) Recognized in Net Earnings on Derivative
	Three Months Ended					Six Months Ended
(In millions)	March 30, 2012		April 1, 2011			March 30, 2012		April 1, 2011
Selling, general and administrative expenses	$	0.4	$	(7.8	)	$	2.1	$	(3.0	)

The gains (losses) on these derivative instruments were significantly offset by the gains (losses) resulting from the remeasurement of monetary assets and liabilities denominated in currencies other than the U.S. dollar functional currency.

Contingent Features

Certain of the Company’s derivative instruments are subject to a master netting agreement which contains provisions that require the Company, in the event of a default, to settle the outstanding contracts in net liability positions by making settlement payments in cash or by setting off amounts owed to the counterparty against any credit support or collateral held by the counterparty. The counterparty’s right of set-off is not limited to the derivative instruments and applies to other rights held by the counterparty. Pursuant to the master netting agreement, an event of default includes the Company’s failure to pay the counterparty under the derivative instruments, voluntary or involuntary bankruptcy, the Company’s failure to repay an aggregate of $25 million or more in debts, and deterioration of creditworthiness of the surviving entity when the Company

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

merges or transfers its assets or liabilities to another entity. As of March 30, 2012 and September 30, 2011, the Company did not have significant outstanding derivative instruments with credit-risk-related contingent features that were in a net liability position.

9. COMMITMENTS AND CONTINGENCIES

Product Warranty

The following table reflects the changes in the Company’s accrued product warranty:


	Six Months Ended
(In millions)	March 30, 2012			April 1, 2011
Accrued product warranty, at beginning of period	$	50.1		$	53.2
Charged to cost of revenues		23.3			20.1
Actual product warranty expenditures		(24.8	)		(23.2	)

Accrued product warranty, at end of period	$	48.6		$	50.1

Other Commitments

In September 2011, the Company, through its Swiss subsidiary, participated in a $165 million loan facility for CPTC, under which the subsidiary committed to loan up to $115 million to finance the construction and start-up operations of a proton therapy center. See Note 15, “Variable Interest Entity” for a detailed discussion.

In September 2011, the Company entered into a commercial agreement in which the Company agreed to resell a third party company’s products. As part of that agreement, the Company agreed to make guaranteed prepayments of $67 million to that third party for orders of its products that the Company will resell to end-user customers. As of March 30, 2012, the Company had remaining guaranteed prepayment obligations of $14 million in fiscal year 2012 and $21 million in fiscal year 2013 under this commercial agreement.

Environmental Remediation Liabilities

The Company’s operations and facilities, past and present, are subject to environmental laws, including laws that regulate the handling, storage, transport and disposal of hazardous substances. Certain of those laws impose cleanup liabilities under certain circumstances. In connection with those laws and certain of the Company’s past and present operations and facilities, the Company oversees various environmental cleanup projects and also reimburses certain third parties for cleanup activities. Those include facilities sold as part of the Company’s electron devices business in 1995 and thin film systems business in 1997. In addition, the U.S. Environmental Protection Agency (“EPA”) or third parties have named the Company as a potentially responsible party under the amended Comprehensive Environmental Response Compensation and Liability Act of 1980 (“CERCLA”), at sites to which the Company or the facilities of the sold businesses were alleged to have shipped waste for recycling or disposal (the “CERCLA sites”). In connection with the CERCLA sites, the Company to date has been required to pay only modest amounts as its contributions to cleanup efforts. Under the agreement that governs the spin-offs of Varian, Inc., which was acquired by Agilent Technologies Inc. (the successor entity hereinafter referred to as “VI”), and Varian Semiconductor Equipment Associates, Inc., which was acquired by Applied Materials, Inc. (the successor entity hereinafter referred to as “VSEA”), VI and VSEA are each obligated to indemnify the Company for one-third of the environmental cleanup costs associated with corporate, discontinued or sold operations prior to the spin-offs (after adjusting for any insurance proceeds or tax benefits received by the Company), as well as fully indemnify the Company for other liabilities arising from the operations of the business transferred to it as part of the spin-offs.

The Company spent $0.2 million (net of amounts borne by VI and VSEA) during both the three months ended March 30, 2012 and April 1, 2011, on environmental cleanup costs, third-party claim costs, project management costs and legal costs. The Company spent $0.4 million (net of amounts borne by VI and VSEA) during both the six months ended March 30, 2012 and April 1, 2011 on such costs.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

Inherent uncertainties make it difficult to estimate the likelihood of the cost of future cleanup, third-party claims, project management and legal services for the CERCLA sites and one of the Company’s past facilities. Nonetheless, as of March 30, 2012, the Company estimated that, net of VI’s and VSEA’s indemnification obligations, future costs associated with the CERCLA sites and this facility would range in total from $2.1 million to $9.3 million. The time frames over which these cleanup project costs are estimated vary, ranging from one year up to thirty years as of March 30, 2012. Management believes that no amount in that range is more probable of being incurred than any other amount and therefore accrued $2.1 million for these cleanup projects as of March 30, 2012. The accrued amount has not been discounted to present value due to the uncertainties that make it difficult to develop a single best estimate.

The Company believes it has gained sufficient knowledge to better estimate the scope and cost of monitoring, cleanup and management activities for its other past and present facilities. This, in part, is based on agreements with other parties and also cleanup plans approved by or completed in accordance with the requirements of the governmental agencies having jurisdiction. As of March 30, 2012, the Company estimated that the Company’s future exposure, net of VI’s and VSEA’s indemnification obligations, for the costs at these facilities, and reimbursements of third party’s claims for these facilities, ranged in total from $6.0 million to $37.7 million. The time frames over which these costs are estimated to be incurred vary, ranging from one year to thirty years as of March 30, 2012. As to each of these facilities, management determined that a particular amount within the range of estimated costs was a better estimate than any other amount within the range, and that the amount and timing of these future costs were reliably determinable. The best estimate within that range was $13.9 million at March 30, 2012. Accordingly, the Company has accrued $10.5 million for these costs, which represents the best estimate discounted at 4%, net of inflation. This accrual is in addition to the $2.1 million described in the preceding paragraph.

These amounts are only estimates of anticipated future costs. The amounts the Company will actually spend may be greater or less than these estimates, even as the Company believes the degree of uncertainty will narrow as cleanup activities progress. While the Company believes its reserve is adequate, as the scope of the Company’s obligations becomes more clearly defined, the Company may modify the reserve, and charge or credit future earnings accordingly. Nevertheless, based on information currently known to management, and assuming VI and VSEA satisfy their indemnification obligations, management believes the costs of these environmental-related matters are not reasonably likely to have a material adverse effect on the consolidated financial statements of the Company in any one fiscal year.

The Company evaluates its liability for investigation and cleanup costs in light of the obligations and apparent financial strength of potentially responsible parties and insurance companies with respect to which the Company believes it has rights to indemnity or reimbursement. The Company has asserted claims for recovery of environmental investigation and cleanup costs already incurred, and to be incurred in the future against various insurance companies and other third parties. The Company receives certain cash payments in the form of settlements and judgments from defendants, insurers and other third parties from time to time. The Company has also reached an agreement with an insurance company under which that insurer has agreed to pay a portion of the Company’s past and future environmental-related expenditures. The Company recorded receivables from that insurer of $2.7 million at March 30, 2012 and $3.0 million at September 30, 2011, with the respective current portion included in “Prepaid expenses and other current assets” and the respective noncurrent portion included in “Other assets” in the Condensed Consolidated Balance Sheets. The Company believes that this receivable is recoverable because it is based on a binding, written settlement agreement with what appears to be a financially viable insurance company, and the insurance company has paid the Company’s claims in the past.

The availability of the indemnities of VI and VSEA will depend upon the future financial strength of VI and VSEA. Given the long-term nature of some of the liabilities, VI and VSEA may be unable to fund the indemnities in the future. It is also possible that a court would disregard this contractual allocation among the parties and require the Company to assume responsibility for obligations allocated to another party, particularly if the other party were to refuse or was unable to pay any of its allocated share. The agreement governing the spin-offs generally provides that if a court prohibits a company from satisfying its shared indemnification obligations, the indemnification obligations will be shared equally by the two other companies.

Acquisition-Related Commitments/Obligations

When the Company acquired ACCEL Instruments GmbH (“ACCEL,” which has since changed its name to Varian Medical Systems Particle Therapy GmbH) in January 2007, ACCEL was involved in a contract-related lawsuit, which the Company settled by agreeing to perform certain commissioning services for a proton therapy system for a fixed-price contract (the

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

“Fixed-Price Contract”). In the first quarter of fiscal year 2010, the Company entered into a new contract (the “New Contract”) to perform certain services for a fixed price. The balance of the loss accrual related to this contingency (the New Contract) was €0.9 million as of March 30, 2012. If the actual costs related to the contingency exceed the estimated amount or if the estimated loss increases, the variances will be recognized in the Consolidated Statements of Earnings in the periods in which these variances arise.

Other Matters

From time to time, the Company is a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of its business or otherwise. These matters include, as of March 30, 2012, a patent infringement lawsuit initiated in 2007 by the University of Pittsburgh regarding the Company’s Real-time Position Management™ technology. On or about December 21, 2011, the trial court presiding over the litigation entered a summary judgment order in the case finding that the Company’s RPM technology was covered by some of the claims of the subject patent. The remaining issues in the litigation were then trifurcated by the trial court, and in the proceedings the jury found (i) that the Company willfully infringed the subject patent, (ii) that the Company is liable for approximately $37 million in actual damages and (iii) that the subject patent was valid. In an order dated April 25, 2012, the court enhanced damages by doubling them to approximately $74 million. In addition, the court assessed prejudgment interest to the damages award in the amount of approximately $13 million, damages for the period from the last time sales information was updated in the litigation, i.e. , March 2011, until judgment, which will be doubled, and attorneys fees in an amount to be determined. The court also ordered the Company to pay ongoing royalties at the rates found by the jury for sales after the date of judgment. The Company intends to appeal the findings against it and believes that it has valid reasons for the judgment to be reversed.

The Company accrues amounts, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss. As of March 30, 2012, the Company had accrued an aggregate of approximately $7 million of such losses with respect to ongoing proceedings, including the University of Pittsburgh proceeding. However, such matters are subject to many uncertainties and outcomes are not predictable with assurance. The Company is unable to estimate a range of reasonably possible losses in excess of the amounts accrued with respect to such matters. There can be no assurances as to whether the Company will become subject to significant additional claims and liabilities with respect to ongoing or future proceedings. If actual liabilities significantly exceed the estimates made, the Company’s consolidated financial position, results of operations or cash flows could be materially adversely affected.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

10. RETIREMENT PLANS

The Company’s net defined benefit and post-retirement benefit costs were composed of the following:


	Three Months Ended						Six Months Ended
(In thousands)	March 30, 2012			April 1, 2011			March 30, 2012			April 1, 2011
Defined Benefit Plans
Service cost	$	1,100		$	894		$	2,209		$	1,768
Interest cost		1,347			1,227			2,691			2,427
Settlement gain		—			—			(161	)		—
Expected return on plan assets		(1,335	)		(1,198	)		(2,666	)		(2,371	)
Amortization of prior service cost		40			37			80			75
Recognized actuarial loss		621			513			1,242			1,026

Net periodic benefit cost	$	1,773		$	1,473		$	3,395		$	2,925

Post-Retirement Benefit Plans
Interest cost	$	55		$	62		$	110		$	124
Amortization of prior service cost		1			1			2			2
Recognized actuarial loss		21			13			42			26

Net periodic benefit cost	$	77		$	76		$	154		$	152

The Company made contributions to the defined benefit plans of $6.5 million during the six months ended March 30, 2012. The Company currently expects total contributions to the defined benefit plans for fiscal year 2012 will be approximately $9.8 million. The Company made contributions to the post-retirement benefit plans of $0.3 million during the six months ended March 30, 2012. The Company currently expects total contributions to the post-retirement benefit plans for fiscal year 2012 will be approximately $0.5 million.

11. INCOME TAXES

The Company’s effective tax rate was 25.3% for the three months ended March 30, 2012, compared to 31.8% in the same period of fiscal year 2011. For the six months ended March 30, 2012, the Company’s effective tax rate was 27.6%, compared to 30.8% in the same period of fiscal year 2011. The decrease in the Company’s effective tax rate was primarily due to a shift in the geographic mix of earnings towards jurisdictions with lower tax rates. The Company’s effective income tax rate differs from the U.S. federal statutory rate primarily because the Company’s foreign earnings are taxed at rates that are, on average, lower than the U.S. federal rate, and because the Company’s domestic earnings are subject to state income taxes.

The total amount of unrecognized tax benefits did not change by a significant amount during the six months ended March 30, 2012; however, the amount of unrecognized tax benefits has increased as a result of positions taken during the current and prior years, and has decreased as a result of expirations of the statutes of limitation and audit settlements in various jurisdictions.

12. STOCKHOLDERS’EQUITY

Stock Repurchase Program

During the three months ended March 30, 2012, the Company settled an accelerated share repurchase agreement executed on August 25, 2011 with BofA (the “August 2011 Repurchase Agreement”). Pursuant to the August 2011 Repurchase Agreement, the Company paid to BofA $250 million and BofA delivered 3,849,638 shares of VMS common stock, representing approximately 85% of the shares expected to be repurchased. The remaining $37.5 million, representing approximately 15% of the initial cash payment to BofA, was recorded as an equity forward contract, which was included in “Capital in excess of par value” in the Condensed Consolidated Balance Sheet at September 30, 2011 and March 30, 2012. Under the terms of the August 2011 Repurchase Agreement, the specific number of shares that the Company ultimately repurchased was to be based on the volume weighted average share price of VMS common stock during the repurchase

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

period, less a discount, such that the Company might be entitled to receive additional shares of VMS common stock from BofA or the Company might be required to deliver shares of VMS common stock or, at the Company’s option, make a cash payment to BofA. The repurchase period ended in February 2012 and the Company received an additional 375,449 shares of VMS common stock upon the settlement of the August 2011 Repurchase Agreement. The market value of the shares received of $25 million was included in “Capital in excess of par value” as of March 30, 2012.

Including the 375,449 shares received upon the upon the settlement of the August 2011 Repurchase Agreement, the Company repurchased a total of 1,500,000 shares of VMS common stock during the six months ended March 30, 2012, all of which were repurchased in the three months ended March 30, 2012. During the six months ended April 1, 2011, the Company repurchased 3,547,474 shares of VMS common stock, all of which were repurchased in the three months ended April 1, 2011, including shares of VMS common stock repurchased under earlier accelerated share repurchase agreements. Aggregate cash payments in connection with accelerated share repurchase agreements, if any, and for shares repurchased in the open market totaled $75.4 million during the three and six months ended March 30, 2012. Aggregate cash payments for such transactions for the three and six months ended April 1, 2011 totaled $306.1 million. All shares that were repurchased have been retired.

In February 2011, the VMS Board of Directors authorized the repurchase of 12 million shares of VMS common stock through the end of fiscal year 2012. As of March 30, 2012, 5,933,718 shares of VMS common stock remained available for repurchase under this repurchase authorization. Shares may be repurchased in the open market, in privately negotiated transactions (such as the August 2011 and similar accelerated repurchase programs) or under Rule 10b5-1 share repurchase plans, and may be made from time to time or in one or more blocks.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

Comprehensive Earnings

The components of comprehensive earnings are as follows:


	Three Months Ended						Six Months Ended
(In thousands)	March 30, 2012			April 1, 2011			March 30, 2012			April 1, 2011
Net earnings	$	107,772		$	103,079		$	198,006		$	199,568
Other comprehensive income (loss), net of tax:
Defined benefit pension and post-retirement benefit plans:
Settlement loss		—			—			91			—
Amortization of prior service cost included in net periodic benefit cost		35			34			71			68
Amortization of net actuarial loss included in net periodic benefit cost		516			414			1,029			827

		551			448			1,191			895
Unrealized gain on derivatives:
Increase (decrease) in unrealized gain		841			(3	)		774			(318	)
Reclassification adjustments		(126	)		222			(84	)		625

		715			219			690			307
Currency translation adjustment		4,939			8,975			11			4,520
Other comprehensive income (loss)		6,205			9,642			1,892			5,722

Total comprehensive earnings	$	113,977		$	112,721		$	199,898		$	205,290

13. EMPLOYEE STOCK PLANS

In February 2012, VMS’s stockholders approved the further amendment of the Varian Medical Systems, Inc. 2005 Ominbus Stock Plan and its restatement as the Third Amended and Restated 2005 Omnibus Stock Plan (the “Third Amended 2005 Plan”) to (i) increase the number of shares available for grant under the plan by 6,000,000 shares, (ii) change the number of shares counted against the available-for-grant limit from 2.5 shares to 2.6 shares for every one share issued in connection with awards other than stock options and stock appreciation rights on a go-forward basis and (iii) extend the term of the Third Amended 2005 Plan until November 11, 2021.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

The table below summarizes the share-based compensation expense recognized under ASC 718 for stock awards under the Third Amended 2005 Plan (before and after its February 2012 amendment and restatement) and for the option component of the employee stock purchase plan shares:


	Three Months Ended						Six Months Ended
(In thousands, except per share amounts)	March 30, 2012			April 1, 2011			March 30, 2012			April 1, 2011
Cost of revenues—Product	$	1,247		$	1,409		$	2,244		$	1,958
Cost of revenues—Service contracts and other		405			438			867			1,218
Research and development		1,727			1,586			3,259			3,311
Selling, general and administrative		11,259			10,107			18,769			19,617
Taxes on earnings		(4,707	)		(4,601	)		(8,048	)		(8,885	)

Net decrease in net earnings	$	9,931		$	8,939		$	17,091		$	17,219


Increase (decrease) on:
Cash flows from operating activities (1)	$	(4,917	)	$	(8,250	)	$	(6,144	)	$	(17,486	)
Cash flows from financing activities (1)	$	4,917		$	8,250		$	6,144		$	17,486

(1)	Amounts represent excess tax benefits from share-based compensation.

During the three and six months ended March 30, 2012, total share-based compensation expense recognized in earnings before taxes was $14.6 million and $25.1 million, respectively, and the total related recognized tax benefit was $4.7 million and $8.0 million, respectively. During the three and six months ended April 1, 2011, total share-based compensation expense recognized in earnings before taxes was $13.5 million and $26.1 million, respectively, and the total related recognized tax benefit was $4.6 million and $8.9 million, respectively.

Total share-based compensation expense capitalized as part of inventory for the three and six months ended March 30, 2012 was $0.9 million and $1.7 million, respectively. Total share-based compensation expense capitalized as part of inventory for the three and six months ended April 1, 2011 was $0.9 million and $1.7 million, respectively.

During the six months ended March 30, 2012, the Company granted performance units to certain employees under the Third Amended 2005 Plan (before and after its amendment and restatement). The number of shares of VMS common stock ultimately issued under the performance units at the end of a three-year performance period will depend on the Company’s business performance during the three-year period against specified performance targets set by the Compensation and Management Development Committee of the Board of Directors at the beginning of the period. Subject to certain exceptions, any unvested performance unit awards are generally forfeited at the time of termination.

The fair value of options granted was estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:


	Three Months Ended						Six Months Ended
	March 30, 2012			April 1, 2011			March 30, 2012			April 1, 2011
Employee Stock Option Plans
Expected term (in years)		4.77			4.69			4.64			4.69
Risk-free interest rate		0.8	%		2.2	%		0.8	%		2.0	%
Expected volatility		35.3	%		35.6	%		36.9	%		35.6	%
Expected dividend		—			—			—			—
Weighted average fair value at grant date	$	20.19		$	23.80		$	18.75		$	23.26

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

The option component of employee stock purchase plan shares was estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:


	Three Months Ended						Six Months Ended
	March 30, 2012			April 1, 2011			March 30, 2012			April 1, 2011
Employee Stock Purchase Plan
Expected term (in years)		0.50			0.50			0.50			0.50
Risk-free interest rate		0.1	%		0.2	%		0.1	%		0.2	%
Expected volatility		20.4	%		12.1	%		21.9	%		11.7	%
Expected dividend		—			—			—			—
Weighted average fair value at grant date	$	12.20		$	11.56		$	12.49		$	11.49

Activity under the Company’s employee stock plans is presented below:


				Options Outstanding
(In thousands, except per share amounts)	Shares Available for Grant			Number of Shares			Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (3)
Balance at September 30, 2011		8,424			6,917		$	45.90
Authorized		6,000			—			—
Granted ⁽¹⁾		(2,641	)		735			58.44
Cancelled or expired ⁽²⁾		27			(9	)		54.54
Exercised		—			(861	)		41.10

Balance at March 30, 2012		11,810			6,782		$	47.85		4.0	$	143,203

Exercisable at March 30, 2012					5,700		$	46.22		3.6	$	128,994

(1) The difference between the number of shares granted listed in the column headed “Shares Available for Grant” and the number of shares granted listed in the column headed “Options Outstanding—Number of Shares” represents the awards of deferred stock units, restricted stock units and performance units. Deferred stock unit, restricted stock unit and performance unit awards were counted against the shares available for grant limit as 2.5 shares for every one awarded before February 9, 2012 and were counted against the shares available for grant limit as 2.6 shares for every one awarded on or after February 9, 2012. In addition, the shares available for grant limit was further adjusted to reflect a maximum payout of 1.5 shares that could be issued for each performance unit granted.

(2) The difference between the number of cancelled or expired shares listed in the column headed “Shares Available for Grant” and the number of cancelled or expired shares listed in the column headed “Options Outstanding—Number of Shares” represents the cancellation of shares of restricted common stock and restricted stock units due to employee terminations.

(3) The aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the exercise price and the closing price of VMS common stock of $68.96 as of March 30, 2012, the last trading date of the second quarter of fiscal year 2012, and which would have been received by the option holders had all option holders exercised and sold their options as of that date.

As of March 30, 2012, there was $14.5 million of total unrecognized compensation expense related to outstanding stock options. This unrecognized compensation expense is expected to be recognized over a weighted average period of 1.8 years.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

The activity for restricted stock, restricted stock units, deferred stock units and performance units is summarized as follows:


(In thousands, except per share amounts)	Shares			Weighted Average Grant-Date Fair Value
Balance at September 30, 2011		735		$	47.36
Granted		704			58.99
Vested		(203	)		37.87
Cancelled or expired		(7	)		53.15

Balance at March 30, 2012		1,229		$	55.55

As of March 30, 2012, unrecognized compensation expense totaling $43.2 million was related to awards of restricted stocks, restricted stock units, deferred stock units and performance units. This unrecognized compensation expense is expected to be recognized over a weighted average period of 2.0 years.

14. EARNINGS PER SHARE

Basic net earnings per share is computed by dividing net earnings by the weighted average number of shares of VMS common stock outstanding for the period. Diluted net earnings per share is computed by dividing net earnings by the sum of the weighted average number of common shares outstanding and dilutive common shares under the treasury method.

The following table sets forth the computation of net basic and diluted earnings per share:


	Three Months Ended				Six Months Ended
(In thousands, except per share amounts)	March 30, 2012		April 1, 2011		March 30, 2012		April 1, 2011
Net earnings	$	107,772	$	103,079	$	198,006	$	199,568

Weighted average shares outstanding—basic		112,354		117,959		112,282		117,896
Dilutive effect of potential common shares		2,159		2,427		2,146		2,440

Weighted average shares outstanding—diluted		114,513		120,386		114,428		120,336

Net earnings per share—basic	$	0.96	$	0.87	$	1.76	$	1.69

Net earnings per share—diluted	$	0.94	$	0.86	$	1.73	$	1.66

The Company excludes potentially dilutive common shares (consisting of shares underlying stock options and the employee stock purchase plan) from the computation of diluted weighted average shares outstanding if the per share value, either the exercise price of the awards or the sum of (a) the exercise price of the awards and (b) the amount of the compensation cost attributed to future services and not yet recognized and (c) the amount of tax benefit or shortfall that would be recorded in additional paid-in capital when the award becomes deductible, is greater than the average market price of the shares, because the inclusion of the shares underlying these stock awards would be antidilutive to earnings per share.

Based on this calculation, stock options to purchase 743,646 shares at an average exercise price of $58.87 per share and 41,750 shares at an average exercise price of $69.79 per share were excluded from the computation of diluted weighted average shares outstanding for the three months ended March 30, 2012 and April 1, 2011, respectively. Stock options to purchase 249,798 shares at an average exercise price of $61.73 and 164,613 shares at an average exercise price of $56.67 per share were excluded from the computation of diluted weighted average shares outstanding for the six months ended March 30, 2012 and April 1, 2011, respectively.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

15. VARIABLE INTEREST ENTITY

During fiscal year 2011, the Company entered into a number of agreements with CPTC. CPTC is a variable interest entity that was established to finance and operate the Scripps Proton Therapy Center in San Diego, California. CPTC has raised approximately $60 million in equity and has received a $165.3 million loan facility, in which the Company participates, to finance the construction and start-up operations of this center. Scripps Clinic Medical Group, Inc. (“Scripps”) will be responsible for the clinical operations of the Scripps Proton Therapy Center, which is scheduled to open in calendar year 2013.

In April 2010, the Company signed an $88 million agreement to supply a proton therapy system to CPTC. The Company began recognizing revenues under this contract in the fourth quarter of fiscal year 2011. In June 2011, the Company signed a ten-year, approximately $60 million agreement with CPTC to service the proton therapy system. No revenues have been recognized under this service agreement. In addition, in September 2011, ORIX Capital Markets, LLC (“ORIX”) and the Company, through its Swiss subsidiary, committed to loan up to $165.3 million to CPTC. ORIX is the loan agent for this facility and, along with CPTC and Scripps, has budgetary approval authority for the Scripps Proton Therapy Center. The Company’s maximum loan commitment under this facility is $115.3 million, reflecting the Company’s pro rata share of 69.75% of the obligation to fund the initial distribution and subsequent advances. As of March 30, 2012, the Company had funded $31.6 million of its $115.3 million commitment, which is reported as a current asset on the Company’s Condensed Consolidated Balance Sheets. The Company’s subsidiary is not obligated to fund any additional amounts to CPTC beyond the $115.3 million committed under the loan facility. The Company may sell all or a portion of its participation in this loan facility before the end of the drawdown period in 2014. Upon the sale of all or a portion of this facility, the Company will not be required to make further loan advances for the portion of the facility that is sold.

The loan, which matures in September 2015, bears interest at LIBOR plus 6.25% per annum with a minimum interest rate of 8.25% per annum. The loan can be extended for two additional one-year terms at the election of CPTC during which extensions interest will accrue at LIBOR plus 7.00% per annum with a minimum interest rate of 9.00% per annum. Interest only payments are due monthly in arrears until July 1, 2014, at which time monthly payments based on amortization of the principal balance over a 15-year period at an interest rate of 8.25% per annum become due and payable. If all or a portion of the principal is repaid on or before July 1, 2014, interest that would have been payable had the principal not been repaid early is due and payable. The Company, as one of the lenders, is entitled to certain fees, including a commitment fee of 1.5% of the loan facility commitment amount and an exit fee of 1% of the amount of principal paid, whether as a result of prepayment or maturity. The loan facility is collateralized by all of the assets of the Scripps Proton Therapy Center. In connection with the loan facility, the Company’s subsidiary also shares 4% of the gross revenues of the Scripps Proton Therapy Center for 35 years. The Company’s subsidiary’s right of revenue sharing may be reduced upon the sale of a portion of the Company’s loan.

The Company has determined that CPTC is a variable interest entity and that the Company holds a significant variable interest of CPTC through its subsidiary’s participation in the loan facility and its agreements to supply and service the proton therapy equipment. The Company has concluded that it is not the primary beneficiary of CPTC. The Company has no voting rights, has no approval authority or veto rights for CPTC’s budget, and does not have the power to direct patient recruitment, clinical operations and management of the Scripps Proton Therapy Center, which the Company believes are the matters that most significantly affect CPTC’s economic performance.

As of March 30, 2012, in addition to the $31.6 million loan to CPTC, the Company had recorded $37.7 million in accounts receivable from CPTC. As of September 30, 2011, the outstanding loan balance to CPTC was $19.2 million and the accounts receivable balance from CPTC was $15.2 million. As of March 30, 2012, the Company’s exposure to loss as a result of its involvement with CPTC was limited to the carrying amounts of these assets on its Condensed Consolidated Balance Sheets.

16. SEGMENT INFORMATION

The Company’s operations are grouped into two reportable operating segments: Oncology Systems and X-ray Products. These reportable operating segments were determined based on how the Company’s Chief Executive Officer, its Chief Operating Decision Maker (“CODM”), views and evaluates the Company’s operations. The Company’s Ginzton Technology Center (“GTC”), SIP business and Varian Particle Therapy (“VPT”) are reflected in the “Other” category because these operating segments do not meet the criteria of a reportable operating segment. The CODM allocates resources to and evaluates the financial performance of each operating segment primarily based on operating earnings.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

The following table summarizes selected operating results information for each business segment:


	Three Months Ended						Six Months Ended
(In millions)	March 30, 2012			April 1, 2011			March 30, 2012			April 1, 2011

Revenues
Oncology Systems	$	566		$	508		$	1,053		$	960
X-ray Products		123			117			236			229

Total reportable segments	$	689		$	625		$	1,289		$	1,189
Other		32			23			57			39

Total company	$	721		$	648		$	1,346		$	1,228

Operating Earnings (Loss)
Oncology Systems	$	125		$	128		$	237		$	248
X-ray Products		33			28			60			58

Total reportable segments	$	158		$	156		$	297		$	306
Other		(9	)		(5	)		(19	)		(13	)
Corporate		(5	)		—			(5	)		(5	)

Total company	$	144		$	151		$	273		$	288

17. BUSINESS COMBINATION

On October 3, 2011, the Company acquired all of the outstanding equity of Calypso Medical Technologies, Inc. (“Calypso”), a privately-held supplier of specialized products and software for real-time tumor tracking and motion management during radiosurgery and radiotherapy. This acquisition, which was integrated into the Company’s Oncology Systems business, enables the Company to offer real-time, non-ionizing tumor tracking tools for enhancing the precision of cancer treatments. This acquisition was accounted for as a business combination. The total purchase price of $15.8 million consisted of $10.9 million of cash consideration and $4.9 million of contingent consideration at fair value. Of the purchase price, $2.5 million was preliminarily allocated to goodwill, $7.9 million to amortizable intangible assets, and $5.4 million to net assets. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and in this case is not deductible for income tax purposes.

This business combination was not significant and therefore pro forma disclosures have not been presented.

18. SUBSEQUENT EVENTS

On April 3, 2012, VMS acquired InfiMed, Inc., a privately-held supplier of hardware and software for processing diagnostic X-ray images, for a cash payment of approximately $15 million plus potential contingent consideration upon achievement of certain milestones. This acquisition, which will be integrated into the Company’s X-ray Products business, will enable the Company to provide more fully integrated X-ray component solutions to its customers.

In April 2012, VMS entered into a strategic global partnership with Siemens AG (“Siemens”) wherein, among other things, the Company will represent Siemens diagnostic imaging products to radiation oncology clinics initially in most international markets and expanding to North America and other markets later in the calendar year, and Siemens will represent the Company’s equipment and software products for radiotherapy and radiosurgery within its offerings to its healthcare customers. Furthermore, the Company and Siemens will develop interfaces that will enable connecting the Company’s ARIA ^® oncology information system software with Siemens linear accelerators and imaging systems, as well as co-develop new imaging and treatment solutions.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

On April 27, 2012, VMS entered into a new, five-year credit agreement with certain lenders and BofA as administrative agent (the “2012 Credit Facility”). The 2012 Credit Facility was arranged by Merrill Lynch, Pierce, Fenner & Smith Incorporated and enables the Company to borrow and have outstanding at any given time $300 million. The 2012 Credit Facility also includes a $50 million sub-facility for the issuance of letters of credit and permits swing line loans of up to $25 million. The Company also has the right to increase the aggregate commitments under the 2012 Credit Facility by up to $200 million, provided that the lenders are willing to provide increased commitments and certain other conditions are met. The 2012 Credit Facility is secured, subject to certain limitations on the amount secured, by a pledge of stock of certain of VMS’s present and future subsidiaries that are deemed to be material subsidiaries. All hedging or treasury management obligations entered into by the Company with a lender are also secured by the stock pledges. The 2012 Credit Facility must be guaranteed by certain of VMS’s material domestic subsidiaries under certain circumstances. The 2012 Credit Facility may be used for working capital, capital expenditures, permitted share repurchases, permitted acquisitions and other lawful corporate purposes.

Borrowings under the 2012 Credit Facility accrue interest either (i) based on a Eurodollar rate (as defined in the credit agreement), plus a margin of 1.25% to 1.5% based on a leverage ratio involving funded indebtedness and earnings before interest, taxes and depreciation and amortization (“EBITDA”) or (ii) based upon a base rate of the highest of (a) the federal funds rate plus 0.5%, (b) BofA’s announced prime rate or (c) the Eurodollar rate plus 1%, plus a margin of 0.25% to 0.5% based on the same leverage ratio, depending on instructions from the Company. The Company also must pay a commitment fee on the unused portion of the 2012 Credit Facility at a rate from 0.25% to 0.50% based on the same leverage ratio. Swing line loans under the 2012 Credit Facility will bear interest at the base rate plus the then applicable margin for base rate loans. The Company may prepay, reduce or terminate the commitments without penalty. The credit agreement contains affirmative and negative covenants applicable to the Company that are typical for credit facilities of this type, and that are subject to materiality and other qualifications, carve-outs, baskets and exceptions. The Company has also agreed to maintain certain financial covenants, including (i) a maximum consolidated leverage ratio, involving funded indebtedness and EBITDA and (ii) a minimum cash flow coverage.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Varian Medical Systems, Inc.:

We have reviewed the accompanying condensed consolidated balance sheet of Varian Medical Systems, Inc. and its subsidiaries (the “Company”) as of March 30, 2012 and the related condensed consolidated statements of earnings for the three-month and six-month periods ended March 30, 2012 and April 1, 2011 and the condensed consolidated statements of cash flows for the six-month periods ended March 30, 2012 and April 1, 2011. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of September 30, 2011, and the related consolidated statements of earnings, of stockholders’ equity and of cash flows for the year then ended (not presented herein), and in our report dated November 23, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2011, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/ S / P RICEWATERHOUSE C OOPERS LLP

PricewaterhouseCoopers LLP

San Jose, CA

May 8, 2012

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 statements about future events, products and future financial performance that are based on the beliefs of, estimates made by and information currently available to the management of Varian Medical Systems, Inc. (“VMS”) and its subsidiaries (collectively “we,” “our” or the “Company”). The outcome of the events described in these forward-looking statements is subject to risks and uncertainties. Actual results and the outcome or timing of certain events may differ significantly from those projected in these forward-looking statements or management’s current expectations due to the factors cited in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), the Risk Factors listed under Part II, Item 1A of this Quarterly Report on Form 10-Q, and other factors described from time to time in our other filings with the Securities and Exchange Commission (“SEC”), or other reasons. For this purpose, statements concerning: industry or market segment outlook; market acceptance of or transition to new products or technology such as fixed field intensity-modulated radiation therapy (“IMRT”), image-guided radiation therapy (“IGRT”), volumetric modulated arc therapy, stereotactic radiotherapy, stereotactic radiosurgery, brachytherapy, software, treatment techniques, proton therapy and advanced x-ray products; future events and developments, including expectations regarding acquisitions or partnerships; growth drivers; future orders, revenues, backlog, earnings or other financial results; and any statements using the terms “believe,” “expect,” “expectation,” “anticipate,” “can,” “may,” “will,” “should,” “will,” “would,” “could,” “estimate,” “continue,” “grow,” “may,” “intended,” “potential,” “ongoing,” “likely,” and “possible” or similar statements are forward-looking statements. By making forward-looking statements, we have not assumed any obligation to, and you should not expect us to, update or revise those statements because of new information, future events or otherwise.

Overview

In the second quarter of fiscal year 2012, revenues increased 11% compared to the year-ago quarter. However, gross margin in the second quarter of fiscal year 2012 decreased 3.4 percentage points from the year-ago quarter due primarily to declines in Oncology Systems and SIP gross margins and revenues in our Varian Particle Therapy (“VPT”) business recognized at a zero margin, partially offset by an improvement in X-ray Products gross margin. Net earnings increased 5% and net earnings per diluted share increased 9% in the second quarter of fiscal year 2012 over the year-ago quarter, helped by a decrease in our effective tax rate. Net earnings per diluted share for the second quarter of fiscal 2012 included a restructuring charge associated with realigning our resources to address growth prospects in emerging markets. The number of weighted average shares outstanding on a diluted basis in the second quarter of fiscal year 2012 decreased from the year-ago quarter primarily due to repurchases of shares of VMS common stock.

All of our businesses reported growth in net orders in the second quarter of fiscal year 2012 from the year-ago quarter. VPT booked orders for two proton therapy systems in the second quarter of fiscal year 2012. Including $156 million in VPT backlog, our backlog at March 30, 2012 was 18% higher than at the end of the second quarter of fiscal year 2011.

In April 2012, we announced a strategic global partnership with Siemens AG (“Siemens”) to provide advanced diagnostic and therapeutic solutions and services for treating cancer with image-guided radiotherapy and radiosurgery.

Oncology Systems . Our largest business segment is Oncology Systems, which designs, manufacturers, sells and services hardware and software products for treating cancer with conventional radiotherapy, IMRT, IGRT, volumetric modulated arc therapy (an advanced form of IMRT), stereotactic body radiotherapy, stereotactic radiotherapy, stereotactic radiosurgery and brachytherapy.

Our primary goal in the Oncology Systems business is to promote the adoption of more advanced and effective cancer treatments. In our view, the fundamental market forces that drive long-term growth in our Oncology Systems business are the rising cancer incidence; technology advances and product developments that are leading to improvements in patient care; customer demand for the more advanced and effective cancer treatments that we offer; competitive conditions among hospitals and clinics to offer such advanced treatments; continued improvement in safety and cost efficiency in delivering radiation therapy; and underserved medical needs outside of the United States. We have recently seen a greater percentage of Oncology Systems net orders and revenues coming from emerging markets within our international region, such as China, Thailand, India and Russia, which typically demand lower-priced products compared to developed markets. We expect that this shift in geographic mix of net orders and revenues will generally continue and may negatively impact Oncology

Systems’ gross margin. A decision regarding the constitutionality of the Affordable Health Care for America Act is currently pending before the U.S. Supreme Court, and we do not know what impact that act, or any surviving portions of that act, will have on long-term growth or demand for our products and services.

In October 2011, we acquired Calypso Medical Technologies, Inc. (“Calypso”), a supplier of specialized products and software for real-time tumor tracking and motion management during radiosurgery and radiotherapy. This acquisition enables us to offer real-time, non-ionizing tumor tracking tools for enhancing the precision of cancer treatments. We expect Calypso will have a dilutive effect on our operating earnings in fiscal year 2012. In April 2012, we entered into a strategic global partnership with Siemens wherein, among other things, we will represent Siemens diagnostic imaging products to radiation oncology clinics initially in most international markets and expanding to North America and other markets later in the year, and Siemens will represent our equipment and software products for radiotherapy and radiosurgery within its offerings to its healthcare customers. Furthermore, we and Siemens will develop interfaces that will enable connecting our ARIA ^® oncology information system software with Siemens linear accelerators and imaging systems, as well as co-develop new imaging and treatment solutions.

Both the international region and North America contributed to the growth in Oncology Systems net orders and revenues in the second quarter of fiscal year 2012 over the second quarter of fiscal year 2011. Oncology Systems gross margin in the second quarter of fiscal year 2012 decreased from the second quarter of fiscal year 2011 primarily due to a significant geographic shift of product revenues away from high margin countries to lower margin countries within the international region. Our Oncology Systems product gross margin for the quarter was further impacted by stiffer pricing pressure.

Through March 30, 2012, we had received orders for about 490 TrueBeam systems since its introduction in the second quarter of fiscal year 2010 and had about 230 systems installed or in progress.

X-ray Products . Our X-ray Products business segment, designs, manufactures and sells X-ray tubes and flat panel detectors for use in a range of applications, including radiographic or fluoroscopic imaging, mammography, special procedures and industrial applications; and X-ray tubes for use in computed tomography (“CT”) scanning. We continue to view the long-term fundamental growth driver for this business to be the ongoing success of key x-ray imaging original equipment manufacturers (“OEMs”) that incorporate our X-ray tube products and flat panel detectors into their medical diagnostic, dental, veterinary and industrial imaging systems.

In the second quarter of fiscal year 2012, X-ray Products net orders increased over the year-ago quarter, with North American net orders partially offset by a decline in international net orders. Revenues in the second quarter of fiscal year 2012 increased compared to the second quarter of fiscal year 2011, with increases from both the international region and North America. Our key Japanese customers appear to have completed the inventory adjustments that slowed net orders and sales in the first quarter of fiscal year 2012. X-ray Products gross margin for the second quarter of fiscal year 2012 increased over the second quarter of fiscal year 2011 primarily due to lower costs of quality for our flat panel products, cost control measures and a product mix shift towards higher margin products.

On April 3, 2012, we acquired InfiMed, Inc., a supplier of hardware and software for processing diagnostic X-ray images, for a cash payment of approximately $15 million plus potential contingent consideration upon achievement of certain milestones. This acquisition will enable X-ray Products to provide more fully integrated X-ray component solutions to our customers.

Our success in our X-ray Products business depends upon our ability to anticipate changes in our markets, the direction of technological innovation and the demands of our customers. In addition, changes in access to diagnostic radiology or the reimbursement rates associated with diagnostic radiology as a result of the Affordable Health Care for America Act, should the relevant provisions of this act survive challenge in the U.S. Supreme Court, or as a result of similar state proposals, could affect demand for our products in our X-ray Products business.

Other . The “Other” category is comprised of SIP, VPT, and the operations of the Ginzton Technology Center (“GTC”). (Please refer to Note 16, “Segment Information” to the Condensed Consolidated Financial Statements within this Quarterly Report on Form 10-Q) .

SIP designs, manufactures, sells and services Linatron ^® x-ray accelerators, imaging processing software and image detection products (including IntellX ^TM ) for cargo screening and non-destructive examination. Orders and revenues for our SIP products have been and may continue to be unpredictable as governmental agencies may place large orders with us or our OEM customers in a short time period, and then may not place any orders for a long time period thereafter.

VPT develops, designs, manufactures, sells and services products and systems for delivering proton therapy, another form of external beam radiotherapy using proton beams, for the treatment of cancer. Although proton therapy has been in clinical use for more than four decades, it has not been widely deployed due to high capital cost. Our current focus is commercializing our proton therapy system and bringing our expertise in traditional radiation therapy to proton therapy to improve its clinical utility and to reduce its cost of treatment per patient.

GTC, our scientific research facility, develops technologies that enhance our current businesses or may lead to new business areas, including technology to improve radiation therapy and x-ray imaging, as well as other technology for a variety of applications, including security and cargo screening. GTC is also actively engaged in searching for chemical or biological agents that work synergistically with radiation to improve treatment outcomes.

In the second quarter of fiscal year 2012, VPT recorded $124 million in net orders primarily for two proton therapy systems, one of which will be installed at the PTC St. Petersburg Center of Nuclear Medicine of the International Institute of Biological Systems in Russia and the other of which will be installed at the King Fahd Medical Center in Riyadh, Saudi Arabia. Increased demand for SIP products also contributed to the increase in net orders the “Other” category in the second quarter of fiscal year 2012 over the year-ago quarter. Revenues in our “Other” category increased in the second quarter of fiscal year 2012 from the year-ago quarter, primarily due to an increase in VPT product revenues partially offset by a decrease in SIP revenues.

This discussion and analysis of our financial condition and results of operations is based upon and should be read in conjunction with the Condensed Consolidated Financial Statements and the notes included elsewhere in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011 (the “2011 Annual Report”), as well as the Risk Factors contained in Part II, Item 1A of this Quarterly Report on Form 10-Q, and other information provided from time to time in our other filings with the SEC.

Critical Accounting Estimates

The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical experience and on various other factors that we believe are reasonable under the circumstances. We periodically review our accounting policies, estimates and assumptions and make adjustments when facts and circumstances dictate. In addition to the accounting policies that are more fully described in the Notes to the Consolidated Financial Statements included in our 2011 Annual Report, we consider the critical accounting policies described below to be affected by critical accounting estimates. Our critical accounting policies that are affected by accounting estimates include revenue recognition, share-based compensation expense, valuation of allowance for doubtful accounts, valuation of inventories, assessment of recoverability of goodwill and intangible assets, valuation of warranty obligations, assessment of environmental remediation liabilities, valuation of defined benefit pension and post-retirement benefit plans, valuation of derivative instruments and taxes on earnings. Such accounting policies require us to use judgments, often as a result of the need to make estimates and assumptions regarding matters that are inherently uncertain, and actual results could differ materially from these estimates. For a discussion of how these estimates and other factors may affect our business, see Part II, Item 1A, “Risk Factors.”

Revenue Recognition

We frequently enter into sales arrangements with customers that contain multiple elements or deliverables such as hardware, software and services. Judgments as to the allocation of consideration from an arrangement to the multiple elements of the arrangement, and the appropriate timing of revenue recognition are critical with respect to these arrangements to ensure compliance with GAAP.

The allocation of consideration in a multiple element arrangement is affected by the determination of whether any software deliverables that function together with other hardware components to deliver the hardware products’ essential functionality are considered as non-software products for purpose of revenue recognition. The allocation of consideration to each non-software deliverable is based on the assumptions we use to establish its selling price, which are based on vendor-specific objective evidence (“VSOE”) of selling price, if it exists, otherwise, third-party evidence of selling price, if it exists, and if not on estimated selling prices. In addition, the allocation of consideration to each software deliverable in a multiple element arrangement is affected by our judgment as to whether VSOE of its fair value exists in these arrangements.

Changes to the elements in an arrangement and the amounts allocated to each element could affect the timing and amount of revenue recognition. Revenue recognition also depends on the timing of shipment and is subject to customer acceptance and the readiness of customers’ facilities. If shipments are not made on scheduled timelines or if the products are not accepted by the customer in a timely manner, our reported revenues may differ materially from expectations.

In addition, revenues related to certain highly customized image detection systems, proton therapy systems and proton therapy system commissioning contracts are recognized in accordance with contract accounting. For contracts in which we can estimate contract costs with reasonable dependability, we recognize contract revenues under the percentage-of-completion method. Revenues recognized under the percentage-of-completion method are based on contract costs incurred to date compared with total estimated contract costs. Changes in estimates of total contract revenue, total contract cost or the extent of progress towards completion are recognized in the period in which the changes in estimates are identified. Estimated losses on contracts are recognized in the period in which the loss is identified. In circumstances in which the final outcome of a contract cannot be precisely estimated but a loss on the contract is not expected, the Company recognizes revenues under the percentage-of-completion method based on a zero profit margin until more precise estimates can be made. If and when the Company can make more precise estimates, revenues and costs of revenues are adjusted in the same period. Because the percentage-of-completion method involves considerable use of estimates in determining revenues, costs and profits and in assigning the dollar amounts to relevant accounting periods, and because the estimates must be periodically reviewed and appropriately adjusted, if our estimates prove to be inaccurate or circumstances change over time, we may be forced to adjust revenues or even record a contract loss in later periods.

Share-based Compensation Expense

We value our stock options granted and the option component of the shares of VMS common stock purchased under the employee stock purchase plan using the Black-Scholes option-pricing model. We value our performance units using the Monte Carlo simulation model. The determination of fair value of share-based payment awards on the date of grant under both the Black-Scholes option-pricing model and the Monte Carlo simulation model is affected by VMS’s stock price, as well as the input of other subjective assumptions, including the expected terms of stock awards and the expected price volatilities of shares of VMS common stocks and peer companies that are used to assess certain performance targets over the expected term of the awards, and the dividend yield of VMS.

The expected term of our stock options is based on the observed and expected time to post-vesting exercise and post-vesting cancellations of stock options by our employees. We determined the expected term of stock options based on the demographic grouping of employees and retirement eligibility. We used a combination of historical and implied volatility, or blended volatility, in deriving the expected volatility assumption for our stock options. Blended volatility represents the weighted average of implied volatility and historical volatility. Implied volatility is derived based on traded options on VMS common stock. Implied volatility is weighted in the calculation of blended volatility based on the ratio of the term of the exchange-traded options to the expected terms of the employee stock options. Historical volatility represents the remainder of the weighting. Our decision to incorporate implied volatility was based on our assessment that implied volatility of publicly traded options on VMS common stock is reflective of market conditions and is generally reflective of both historical volatility and expectations of how future volatility will differ from historical volatility. In determining the extent of use of implied volatility, we considered: (i) the volume of market activity of traded options; (ii) the ability to reasonably match the input variables of traded options to those of stock options granted by us, including the date of grant; (iii) the similarity of the exercise prices; and (iv) the length of term of traded options. After considering the above factors, we determined that we could not rely exclusively on implied volatility based on the fact that the term of VMS exchange-traded options is less than one year and that it is different from the expected terms of the stock options we grant. Therefore, we believe a combination of the historical volatility over the expected terms of the stock options we grant and the implied volatility of exchange-traded options best reflects the expected volatility of VMS common stock. In determining the grant date fair value of our performance units, historical volatilities of shares of VMS common stock, as well as the shares of common stock of peer companies, were used to assess certain performance targets. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our stock awards. The dividend yield assumption is based on our history and expectation of no dividend payouts. If factors change and we employ different assumptions in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period. In addition, we are required to estimate the expected forfeiture rate, as well as the probability that certain performance conditions that affect the vesting of performance units will be achieved, and recognize expense only for those awards expected to vest. If the

actual forfeiture rate and/or the actual number of performance units vested based on achievement of performance conditions are materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period.

Allowance for Doubtful Accounts

We evaluate the creditworthiness of our customers prior to authorizing shipment for all major sale transactions. Except for government tenders, group purchases and orders with letters of credit in Oncology Systems, SIP and VPT, and orders in our X-ray Products business, our payment terms usually require payment of a small portion of the total amount due when the customer signs the purchase order, a significant amount upon transfer of risk of loss to the customer and the remaining amount upon completion of the installation. On a quarterly basis, we evaluate aged items in the accounts receivable aging report and provide an allowance in an amount we deem adequate for doubtful accounts. If our evaluation of our customers’ financial conditions does not reflect our future ability to collect outstanding receivables, additional provisions may be needed and our operating results could be negatively affected.

Inventories

Our inventories include high technology parts and components that are highly specialized in nature and that are subject to rapid technological obsolescence. We have programs to minimize the required inventories on hand and we regularly review inventory quantities on hand and on order and adjust for excess and obsolete inventory based primarily on historical usage rates and our estimates of product demand and production. Actual demand may differ from our estimates, in which case we may have understated or overstated the provision required for obsolete and excess inventory, which would have an impact on our operating results.

Goodwill and Intangible Assets

Goodwill is initially recorded when the purchase price paid for a business acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. The majority of businesses that we have acquired have not had significant identified tangible assets and, as a result, we have typically allocated a significant portion of the purchase price to intangible assets and goodwill. Our future operating performance will be impacted by the future amortization of these acquired intangible assets and potential impairment charges related to these intangibles or to goodwill if indicators of impairment exist. The allocation of the purchase price from business acquisitions to goodwill and intangible assets could have a significant impact on our future operating results. In addition, the allocation of the purchase price of the acquired businesses to goodwill and intangible assets requires us to make significant estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate for those cash flows. Should conditions differ from management’s estimates at the time of the acquisition, material write-downs of intangible assets and/or goodwill may be required, which would adversely affect our operating results.

In accordance with Accounting Standard Codification (“ASC”) 350, we evaluate goodwill for impairment at least annually or whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment test for goodwill is a two-step process. Step one consists of a comparison of the fair value of a reporting unit against its carrying amount, including the goodwill allocated to each reporting unit. We determine the fair value of our reporting units based on the present value of estimated future cash flows of the reporting units. If the carrying amount of the reporting unit is in excess of its fair value, step two requires the comparison of the implied fair value of the reporting unit’s goodwill against the carrying amount of the reporting unit’s goodwill. Any excess of the carrying value of the reporting unit’s goodwill over the implied fair value of the reporting unit’s goodwill is recorded as an impairment loss. The impairment test for intangible assets with indefinite useful lives, if any, consists of a comparison of fair value to carrying value, with any excess of carrying value over fair value being recorded as an impairment loss. Based on the most recent annual goodwill impairment testing that we performed in fiscal year 2011 for each of our four reporting units with goodwill (Oncology Systems, X-ray Products, SIP and VPT), the fair value of each such reporting unit was substantially in excess of its carrying value. We will continue to make assessments of impairment on an annual basis or more frequently if indicators of potential impairment arise.

Warranty Obligations

We warrant most of our products for a specific period of time, usually twelve months, against material defects. We provide for the estimated future costs of warranty obligations in cost of revenues when the related revenues are recognized. The accrued warranty costs represent our best estimate at the time of sale of the total costs that we will incur to repair or replace

product parts that fail while still under warranty. The amount of accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs. For new products, estimates will include historical experience of similar products, as well as reasonable allowance for start-up expenses. Actual warranty costs could differ from the estimated amounts. On a quarterly basis, we review the accrued balances of our warranty obligations and update the historical warranty cost trends, if required. If we were required to accrue additional warranty costs in the future, it would have a negative effect on our operating results.

Environmental Matters

We are subject to a variety of environmental laws around the world. Those laws regulate multiple aspects of our operations, including the handling, storage, transport and disposal of hazardous substances. They impose costs on our operations. In connection with our past and present operations and facilities, we record environmental remediation liabilities when we conclude that environmental assessments or remediation efforts are probable and we believe we can reasonably estimate the costs of those efforts . Our accrued environmental costs represent our best estimate of the total costs of assessments and remediation and the time period over which we expect to incur those costs. We review these accrued balances quarterly. If we were required to increase or decrease the accrued environmental costs in the future, it would adversely or favorably impact our operating results.

Defined Benefit Pension and Post-Retirement Benefit Plans

We sponsor five defined benefit pension plans in Germany, Japan, Switzerland (where we have two defined benefit pension plans) and the United Kingdom covering employees who meet the applicable eligibility requirements in these countries. Although we do not have any defined benefit pension plans in the United States, we sponsor a post-retirement benefit plan that provides healthcare benefits to certain eligible retirees. Several statistical and other factors that attempt to anticipate future events are used in calculating the expenses and liabilities related to those plans for which the benefits are actuarially determined, such as our defined benefit pension and post-retirement benefit plans. These factors include assumptions about the discount rate, expected return on plan assets, rate of future compensation increases and rate of healthcare cost increases, all of which we determine within certain guidelines. In addition, we also use assumptions, such as withdrawal and mortality rates, to calculate the expenses and liabilities. The actuarial assumptions we use are long-term assumptions and may differ materially from actual experience particularly in the short term due to changing market and economic conditions and changing participant demographics. These differences may have a significant impact on the amount of defined benefit pension and post-retirement benefit plan expense we record.

The expected rates of return on the various defined benefit pension plans’ assets are based on the asset allocation of each plan and the long-term projected return on those assets. The discount rate enables us to state expected future cash flows at a present value on the measurement date. The discount rates used for defined benefit plans in all countries are based primarily on the yields of a universe of high quality corporate bonds in each applicable country or the spot rate of high quality AA-rated corporate bonds, with durations corresponding to the expected durations of the benefit obligations. A change in the discount rate will cause the present value of benefit obligations to change in the opposite direction.

Valuation of Derivative Instruments

We use foreign currency forward contracts to reduce the effects of currency fluctuations on sales transactions denominated in foreign currencies and on assets and liabilities denominated in foreign currencies. These foreign currency forward contracts are derivative instruments and are measured at fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value (see Note 3, “Fair Value” of the Notes to the Condensed Consolidated Financial Statements). Each level of input has different levels of subjectivity and difficulty involved in determining fair value. The fair value of foreign currency forward contracts are calculated primarily using Level 2 inputs, which include currency spot and forward rates, interest rate and credit or non-performance risk. The spot rate for each currency is the same spot rate used for all balance sheet translations at the measurement date and sourced from our major trading banks. The forward point values for each currency and the London Interbank Offered Rate (“LIBOR”) to discount assets and liabilities are interpolated from commonly quoted broker services. One year credit default swap spreads of the counterparty at the measurement date are used to adjust derivative assets, all of which mature in 12 months or less, for non-performance risk. We are required to adjust derivative liabilities to reflect the potential non-performance risk to lenders based on our incremental borrowing rate. Each contract is individually adjusted using the counterparty credit default swap rates (for net assets) or our borrowing rate (for net liabilities). The use of Level 2 inputs in determining fair values requires certain management judgment and subjectivity. Changes to these Level 2 inputs could have a material impact on the valuation of our derivative instruments, as well as on our result of operations.

Taxes on Earnings

We are subject to taxes on earnings in both the United States and numerous foreign jurisdictions. As a global taxpayer, significant judgments and estimates are required in evaluating our tax positions and determining our provision for taxes on earnings.

The provisions in ASC 740 related to accounting for uncertainty in income taxes contain a two-step approach to recognizing, derecognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that, based on the technical merits, the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Recognition, derecognition and measurement are based on management’s best judgment given the facts, circumstances and information available at the end of the accounting period. A tax benefit should be recognized in the first period in which it meets the more likely than not recognition threshold, and conversely, a tax benefit previously recognized should be derecognized in the first period in which new information results in a change in judgment in which the position fails to meet the recognition threshold. A benefit not previously recognized would be recognized when the tax position is effectively settled through examination, negotiation or litigation with tax authorities, or when the statute of limitations for the relevant taxing authority to examine and challenge the position has expired. Our policy is to include interest and penalties related to unrecognized tax benefits within the provision for taxes on earnings.

Generally, the carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable earnings in the applicable tax jurisdictions to utilize these deferred tax assets. Should we conclude it is more likely than not that we will be unable to recover our net deferred tax assets in these tax jurisdictions, we would increase our valuation allowance and our tax provision would increase in the period in which we make such a determination.

Our foreign earnings are generally taxed at rates lower than U.S. rates. Our effective tax rate is impacted by existing tax laws in both the United States and in the respective countries in which our foreign subsidiaries do business. In addition, a decrease in the percentage of our total earnings from our foreign countries, or a change in the mix of foreign countries among particular tax jurisdictions could increase or decrease our effective tax rate. Our current effective tax rate does not assume U.S. taxes on certain undistributed profits of certain foreign subsidiaries. These earnings could become subject to incremental foreign withholding or U.S. federal and state taxes should they either be deemed or actually remitted to the United States.

Results of Operations

Fiscal Year

Our fiscal year is the 52- or 53-week period ending on the Friday nearest September 30. Fiscal year 2012 is the 52-week period ending September 28, 2012, and fiscal year 2011 was the 52-week period ended September 30, 2011. The fiscal quarters ended March 30, 2012 and April 1, 2011 were both 13-week periods.

Discussion of Results of Operations for the Second Quarter and First Half of Fiscal Year 2012 Compared to the Second Quarter and First Half of Fiscal Year 2011

Total Revenues


Revenues by sales classification	Three Months Ended									Six Months Ended
(Dollars in millions)	March 30, 2012			April 1, 2011			Percent Change			March 30, 2012			April 1, 2011			Percent Change
Product	$	546.8		$	498.7			10	%	$	1,003.6		$	930.5			8	%
Service Contracts and Other		173.5			149.7			16	%		342.0			297.8			15	%

Total Revenues	$	720.3		$	648.4			11	%	$	1,345.6		$	1,228.3			10	%

Product as a percentage of total revenues		76	%		77	%					75	%		76	%
Service Contracts and Other as a percentage of total revenues		24	%		23	%					25	%		24	%

Revenues by region

North America	$	331.4		$	299.9			10	%	$	618.0		$	522.9			18	%

Europe		213.1			174.4			22	%		386.7			378.2			2	%
Asia		148.9			152.7			(2	%)		284.4			277.5			2	%
Rest of world		26.9			21.4			25	%		56.5			49.7			14	%

Total International (1)		388.9			348.5			12	%		727.6			705.4			3	%

Total	$	720.3		$	648.4			11	%	$	1,345.6		$	1,228.3			10	%

North America as a percentage of total revenues		46	%		46	%					46	%		43	%
International as a percentage of total revenues		54	%		54	%					54	%		57	%

(1)	We consider international revenues to be revenues outside of North America.

The increases in total revenues and product revenues in the second quarter and the first half of fiscal year 2012 over the respective year-ago periods was due to revenue growth in Oncology Systems, X-ray Products and VPT, partially offset by declines in SIP revenues.

Service contracts and other revenues increased in the second quarter of fiscal year 2012 over the second quarter of fiscal year 2011 primarily due to an increase in Oncology Systems service contract revenues, and to a lesser extent, increases in SIP and VPT service contracts and other revenues. Service contracts and other revenues increased during the first half of fiscal year 2012 over the year-ago period primarily due to an increase in Oncology Systems service contract revenues and, to a lesser extent, an increase in SIP service contract revenues, partially offset by a decline in VPT service contracts and other revenues.

The growth in total North American revenues in the second quarter of fiscal year 2012 from the second quarter of fiscal year 2011 was primarily due to an increase in revenues in Oncology Systems, VPT, SIP and X-ray Products. For the first half of fiscal year 2012, the increase in total North American revenues over the year-ago period was due to revenue increases in Oncology Systems, VPT and SIP, partially offset by a decrease in revenues in X-ray Products.

International revenues increased in the second quarter of fiscal year 2012 over the second quarter of fiscal year 2011 primarily due to increases in international revenues in Oncology Systems, X-ray Products and VPT, which were partially offset by a decline in international revenues in SIP. For the first half of fiscal year 2012, international revenues increased over the year-ago period was primarily due to increases in international revenues in Oncology Systems and X-ray Products,

which were partially offset by declines in international revenues in SIP and VPT. Compared to the year-ago periods, differences in currency exchange rates overall did not have a significant impact to international revenues when measured in U.S. dollars during the second quarter and the first half of fiscal year 2012.

Oncology Systems Revenues


Revenues by sales classification	Three Months Ended									Six Months Ended
(Dollars in millions)	March 30, 2012			April 1, 2011			Percent Change			March 30, 2012			April 1, 2011			Percent Change
Product	$	397.6		$	362.7			10	%	$	721.5		$	672.4			7	%
Service Contracts (1)		167.8			145.2			16	%		331.5			287.9			15	%

Total Oncology Systems revenues	$	565.4		$	507.9			11	%	$	1,053.0		$	960.3			10	%


Product as a percentage of total Oncology Systems revenues		70	%		71	%					69	%		70	%
Service Contracts as a percentage of Oncology Systems revenues		30	%		29	%					31	%		30	%
Oncology Systems revenues as a percentage of total revenues		78	%		78	%					78	%		78	%

(1)	Revenues from service contracts represent revenues from fixed-term service contracts and labor cost services. This excludes revenues from spare parts sold by our service department.

Oncology Systems product revenues increased in the second quarter and the first half of fiscal year 2012 over the year-ago periods primarily due to increases in revenues from sales of our linear accelerators and, to a lesser extent, from sales of our software products. The increases in Oncology Systems service contract revenues in the second quarter and the first half of fiscal year 2012 over the year-ago periods were primarily driven by increased customer adoption of service contracts as our products become more sophisticated and by increased number of customers as the installed base of our products continues to grow.


Revenues by region	Three Months Ended									Six Months Ended
(Dollars in millions)	March 30, 2012			April 2, 2011			Percent Change			March 30, 2012			April 2, 2011			Percent Change
North America	$	273.5		$	257.7			6	%	$	510.7		$	445.6			15	%

Europe		179.8			134.4			34	%		322.0			302.7			6	%
Asia		86.1			95.3			(10	%)		165.4			164.5			1	%

Rest of world		26.0			20.5			27	%		54.9			47.5			15	%


Total International		291.9			250.2			17	%		542.3			514.7			5	%


Total Oncology Systems revenues	$	565.4		$	507.9			11	%	$	1,053.0		$	960.3			10	%

North America as a percentage of Oncology Systems revenues		48	%		51	%					48	%		46	%
International as a percentage of Oncology Systems revenues		52	%		49	%					52	%		54	%

The increase in North American Oncology Systems revenues in the second quarter of fiscal year 2012 over the year-ago period was primarily due to an increase in service contract revenues and an increase in revenues from sales of our software products. For the first half of fiscal year 2012, the increase in North American Oncology Systems revenues over the year-ago period was primarily due to increased revenues from sales of our high energy accelerators and, to a lesser extent, increased revenues from sales of our software products. Increased service contract revenues also contributed to the increase in North American Oncology Systems revenues for the first half of fiscal year 2012 over the same period of the last fiscal year.

The increase in Oncology Systems international revenues for the second quarter of fiscal year 2012 over the same quarter of the last fiscal year was primarily due to an increase in revenues from sales of our linear accelerators in Europe and the rest of the world region and an increase in service contract revenues in all international regions, partially offset by a decrease in revenues from sales of our linear accelerators in Asia. For the first half of fiscal year 2012, the increase in Oncology Systems international revenues was primarily due to an increase in service contract revenues in all international regions, as well as an increase in revenues from sales of our linear accelerators in Europe and the rest of the world region, partially offset by a decrease in product revenues from sales of our software products in all international regions. Compared to the year-ago periods, differences in currency exchange rates overall did not have a significant impact to Oncology Systems international revenues when measured in U.S. dollars during the second quarter and the first half of fiscal year 2012.

Varying cycles of higher and lower revenues between the North American and international regions (and among countries in the international region) are impacted by regional influences, which recently have included the effects of government economic stimulus programs, the effects of the recession and the pace of economic recovery, the European sovereign debt crisis and uncertainty created by healthcare reform, including the excise tax on the sale of most medical devices, reductions in Medicare reimbursement rates for radiotherapy and radiosurgery in the United States, and different technology adoption cycles that are consistent with the net order patterns. See further discussion of net orders under “Net Orders.” A decision regarding the constitutionality of the Affordable Health Care for America Act is currently pending before the U.S. Supreme Court, and we do not know what impact that act, or any surviving portions of that act, will have on long-term growth or demand for our products and services. Additionally, we are now seeing a greater percentage of Oncology Systems net orders and revenues come from the emerging market countries within our international region, which typically have purchased lower-priced products compared to developed markets and which usually have stiffer price competition. We expect this shift to generally continue.

X-ray Products Revenues


Revenues by region	Three Months Ended									Six Months Ended
(Dollars in millions)	March 30, 2012			April 1, 2011			Percent Change			March 30, 2012			April 1, 2011			Percent Change
North America	$	33.2		$	33.0			1	%	$	63.9		$	65.5			(2	%)

Europe		26.5			27.4			(3	%)		52.6			49.8			6	%
Asia		62.2			56.6			10	%		117.7			112.0			5	%
Rest of world		0.9			0.8			(2	%)		1.6			2.1			(27	%)


Total International		89.6			84.8			6	%		171.9			163.9			5	%


Total X-ray Products Revenues	$	122.8		$	117.8			4	%	$	235.8		$	229.4			3	%


North America as a percentage of X-ray Products revenues		27	%		28	%					27	%		29	%

International as a percentage of X-ray Products revenues		73	%		72	%					73	%		71	%

X-ray Products revenues as a percentage of total revenues		17	%		18	%					18	%		19	%

In the second quarter of fiscal year 2012, X-ray Products revenues increased over the year-ago quarter primarily due to an increase in international revenues, and to a lesser extent, an increase in North American revenues. The increase in international X-ray Products revenues for the second quarter of fiscal year 2012 over the second quarter of fiscal year 2011 was primarily due to increased revenues from sales of our X-ray tube products in Asia and Europe and increased sales of our flat panel products in Asia, partially offset by decreased revenues from sales of our flat panel products in Europe. In North America, an increase in revenues from sales of our X-ray tube products in the second quarter of fiscal year 2012 over the year-ago quarter was partially offset by a decrease in revenues from sales of our flat panel products.

For the first half of fiscal year 2012, the increase in total X-ray Products revenues over the year-ago period was primarily due to an increase in international revenues, partially offset by a decline in North American revenues. Increased sales of our X-ray tube products and flat panel products in Asia and Europe contributed to the increase in the international X-ray Products for the first half of fiscal year 2012 over the year-ago period. In North America, a decline in revenues from decreased sales of our flat panel products was partially offset by an increase in revenues from increased sales of our X-ray tube products in the first half of fiscal year 2012 compared to the first half of fiscal year 2011.

The difference in currency exchange rates between the U.S. dollar and foreign currencies between the second quarter of fiscal year 2011 and the second quarter of fiscal year 2012, as well as between the first half of fiscal year 2011 and the first half of fiscal year 2012, did not have a material impact on X-ray Products international revenue growth because sales transactions in the X-ray Products business are primarily denominated in U.S. dollars.

Other Revenues


Revenues by sales classification	Three Months Ended									Six Months Ended
(Dollars in millions)	March 30, 2012			April 1, 2011			Percent Change			March 30, 2012			April 1, 2011			Percent Change
Product	$	26.4		$	18.1			46	%	$	46.3		$	28.6			62	%
Service Contracts and Other		5.7			4.6			26	%		10.5			10.0			6	%

Total Other Revenues	$	32.1		$	22.7			42	%	$	56.8		$	38.6			47	%


Other revenues as a percentage of total revenues		5	%		4	%					4	%		3	%

Revenues in our “Other” category, which is comprised of SIP, VPT and GTC, increased in the second quarter and in the first half of fiscal year 2012 from the year-ago periods, primarily because of an increase in VPT product revenues. These product revenues were primarily associated with the proton therapy system for the Scripps Proton Therapy Center, for which we recognized revenues based on progress made on this project during the respective fiscal periods. To a lesser extent, an increase in SIP service revenues also contributed to the growth in “Other” revenues in the second quarter and the first half of fiscal year 2012 over the respective year-ago periods. These revenue increases were partially offset by a decrease in SIP products revenues.

Gross Margin


	Three Months Ended									Six Months Ended
(Dollars in millions)	March 30, 2012			April 1, 2011			Percent Change			March 30, 2012			April 1, 2011			Percent Change
Dollars by segment

Oncology Systems	$	238.6		$	231.2			3	%	$	458.0		$	445.3			3	%
X-ray Products		52.8			47.6			11	%		98.5			94.7			4	%
Other		5.3			10.2			(48	%)		9.0			15.8			(43	%)

Gross margin	$	296.7		$	289.0			3	%	$	565.5		$	555.8			2	%


Percentage by segment
Oncology Systems		42.2	%		45.5	%					43.5	%		46.4	%
X-ray Products		43.0	%		40.4	%					41.8	%		41.3	%
Total Company		41.2	%		44.6	%					42.0	%		45.3	%

The decreases in total company gross margin percentage for the second quarter and the first half of fiscal year 2012 over the respective year-ago periods were primarily due to the declines in Oncology Systems and SIP gross margins partially offset by increases in X-ray Products gross margins. In addition, total company gross margin percentage was negatively impacted by VPT’s recognition of revenues relating to the Scripps Proton Therapy Center with a zero profit in the second quarter and the first half of fiscal year 2012.

The decreases in Oncology Systems gross margin percentage the second quarter and the first half of fiscal year 2012 over the respective year-ago periods were due to decreases in Oncology Systems product gross margins, partially offset by increases in Oncology Systems service contract gross margins.

For the second quarter of fiscal year 2012, Oncology Systems product gross margin was 38.2%, compared to 43.6% in the second quarter of fiscal year 2011. For the first half of fiscal year 2012, Oncology Systems product gross margin was 39.5%, compared to 44.2% in the first half of fiscal year 2011. The decreases in gross margins between the quarters and the year-to-date periods were primarily due to a significant geographic shift of product revenues away from higher margin countries to lower margin countries, which typically demand lower-priced products compared to developed markets. Our Oncology Systems product gross margins for the quarter and for the year-to-date period were further impacted by stiffer pricing pressure in our international region, particularly in higher-growth emerging market countries. Oncology Systems service contract gross margin was 51.6% in the second quarter of fiscal year 2012, compared to 50.3% in the second quarter of fiscal year 2011. Oncology Systems service contract gross margin was 52.1% in the first half of fiscal year 2012, compared to 51.4% in the first half of fiscal year 2011. The increases in service contract gross margin were primarily due to higher service contract volume, which lowered the costs per contract. We believe the shift of Oncology Systems revenues towards emerging markets, which typically demand lower-priced products compared to developed markets, will generally continue and may negatively impact Oncology Systems gross margins.

For the second quarter of fiscal year 2012, X-ray Products gross margin improved over the year-ago quarter primarily due to lower costs of quality for our flat panel products, cost control measures and a product mix shift towards higher margin products. For the first half of fiscal year 2012, X-ray Products gross margin improved over the year-ago period primarily due to lower costs of quality for our flat panel products.

The decreases in SIP gross margin in the second quarter and the first half of fiscal year 2012 over the respective year-ago periods were primarily due to a product mix shift toward lower margin products. For the Scripps Proton Therapy Center, we recognized revenues under the percentage-of-completion method as we can provide a reasonably dependable cost estimate for this project. Although we cannot precisely estimate the project’s final outcome due to certain uncertainties and contingencies, we do not expect a loss on this project. Accordingly, we are recognizing revenues for this project under the zero profit margin approach until these uncertainties and contingencies are resolved.

Research and Development


	Three Months Ended									Six Months Ended
(Dollars in millions)	March 30, 2012			April 1, 2011			Percent Change			March 30, 2012			April 1, 2011			Percent Change
Research and development	$	47.0		$	43.9			7	%	$	90.8		$	82.4			10	%
As a percentage of total revenues		6.5	%		6.8	%					6.8	%		6.7	%

The $3.1 million increase in research and development expenses for the second quarter of fiscal year 2012 compared to the second quarter of fiscal year 2011 was primarily due to a $3.3 million increase in Oncology Systems, which was primarily due to incremental research and development expenses for the recently acquired Calypso.

The $8.4 million increase in research and development expenses for the first half of fiscal year 2012 compared to the first half of fiscal year 2011 was primarily due to a $5.9 million increase in Oncology Systems and a $2.3 million increase in X-ray Products. The $5.9 million increase in Oncology Systems was primarily due to incremental research and development expenses for the recently acquired Calypso. The $2.3 million increase in X-ray Products was mainly due to increased development efforts for flat panel products.

Selling, General and Administrative


	Three Months Ended									Six Months Ended
(Dollars in millions)	March 30, 2012			April 1, 2011			Percent Change			March 30, 2012			April 1, 2011			Percent Change
Selling, general and administrative	$	105.8		$	93.9			13	%	$	201.9		$	185.2			9	%
As a percentage of total revenues		14.7	%		14.5	%					15.0	%		15.1	%

The $11.9 million increase in selling, general and administrative expenses for the second quarter of fiscal year 2012 compared to the second quarter of fiscal year 2011 was primarily attributable to: (a) a loss of $1.4 million, versus a gain of $2.0 million in the year-ago quarter, recognized on our equity investment in dpiX Holding LLC; (b) a $2.8 million overall increase in legal expenses relating to ongoing litigation; (c) a $2.5 million restructuring charge for a workforce reduction in North America the accompanied the realignment of resources to support our sales and marketing activities in emerging market countries; (d) a $1.9 million net increase in employee-related costs, in part for increased headcount to support our growing sales, marketing and other business activities particularly in international countries; and (e) a $1.1 million increase in selling, general and administrative expenses associated with the recently acquired Calypso. These increases were partially offset by a $1.2 million decrease in expenses associated with product promotion and certain commission arrangements in our Oncology Systems business.

The $16.7 million increase in selling, general and administrative expenses for the first half of fiscal year 2012 compared to the first half of fiscal year 2011 was primarily attributable to: (a) a loss of $0.5 million, versus a gain of $4.2 million in the

year-ago period, recognized on our equity investment in dpiX Holding LLC; (b) a $3.7 million net increase in employee-related costs, in part for increased headcount to support our growing sales, marketing and other business activities particularly in international countries; (c) a $2.9 million net increase in legal expenses relating to ongoing litigation; (d) a $2.6 million increase in selling, general and administrative expenses associated with the recently acquired Calypso; (e) a $2.0 million increase in restructuring charge primarily for a workforce reduction in North America that accompanied the realignment of resources to support sales and marketing activities in emerging market countries; (f) a $1.7 million increase in bad debt expense; (g) a $1.2 million increase in depreciation expense primarily related to a Palo Alto, California facility that was placed in service in the first quarter of fiscal year 2011; and (h) an unfavorable currency translation impact of $1.0 million as the foreign currency denominated selling, general and administrative expenses of our foreign operations were translated into U.S. dollars. These increases were partially offset by a $5 million contingent liability charge recorded in the first half of fiscal year 2011 for which there was no similar charge in the first half of fiscal year 2012.

Interest Income (Expense), Net


	Three Months Ended						Six Months Ended
(Dollars in millions)	March 30, 2012		April 1, 2011		Percent Change		March 30, 2012		April 1, 2011		Percent Change
Interest income (expense), net	$	0.4	$	—		n/a	$	0.7	$	0.1		877	%

For the second quarter and the first half of fiscal year 2012, the net increases in interest income, net of interest expense, over the respective year-ago periods were primarily due to interest income generated from our loan to California Proton Treatment Center, LLC (“CPTC”), the commitment for which was executed in September 2011.

Taxes on Earnings


	Three Months Ended									Six Months Ended
	March 30, 2012			April 1, 2011			Percent Change			March 30, 2012			April 1, 2011			Percent Change
Effective tax rate		25.3	%		31.8	%		(6.5	%)		27.6	%		30.8	%		(3.2	%)

Our effective tax rate was 25.3% for the three months ended March 30, 2012, compared to 31.8% in the same period of fiscal year 2011. For the six months ended March 30, 2012, our effective tax rate was 27.6%, compared to 30.8% in the same period of fiscal year 2011. The decrease in our effective tax rate was primarily due to a shift in the geographic mix of earnings towards jurisdictions with lower tax rates.

In general, our effective income tax rate differs from the U.S. federal statutory rate primarily because our foreign earnings are taxed at rates that are, on average, lower than the U.S. federal rate, and our domestic earnings are subject to state income taxes. Our future effective tax rate could be adversely affected by having lower earnings than anticipated in countries where we have lower statutory rates and higher earnings than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets or liabilities, and by changes in tax laws or interpretations of those laws. For example, recent proposals would make significant changes to U.S. taxation of U.S.-based multinational corporations. Although we cannot predict whether or in what form Congress would enact any such proposals, legislation of this type could have an adverse impact on our effective tax rate. We also expect that our effective tax rate may experience fluctuation from period to period under the provisions in ASC 740 related to accounting for uncertainty in income taxes. See Note 14, “Taxes on Earnings” of the Notes to the Consolidated Financial Statements in our 2011 Annual Report.

Net Earnings Per Diluted Share


	Three Months Ended							Six Months Ended
	March 30, 2012		April 1, 2011		Percent Change			March 30, 2012		April 1, 2011		Percent Change
Net earnings per diluted share	$	0.94	$	0.86		9	%	$	1.73	$	1.66		4	%

The increases in earnings per diluted share in the second quarter and the first half of fiscal year 2012 over the second quarter and the first half of fiscal year 2011 resulted from (i) increases in total revenues, (ii) decreases in effective tax rate and (iii) reductions in the number of diluted shares of common stock outstanding due to stock repurchases, partially offset by decrease in gross margin percentages and a $2.5 million restructuring charge in the second quarter of fiscal year 2012 associated with realigning resources to address growth prospects in emerging markets.

Net Orders


Total Net Orders (by segment and region)	Three Months Ended							Six Months Ended
(Dollars in millions)	March 30, 2012		April 1, 2011		Percent Change			March 30, 2012		April 1, 2011		Percent Change
Oncology Systems:
North America	$	255.1	$	223.2		14	%	$	459.7	$	452.2		2	%

Total International		309.7		296.9		4	%		589.8		526.9		12	%


Total Oncology Systems	$	564.8	$	520.1		9	%	$	1,049.5	$	979.1		7	%


X-ray Products:
North America	$	47.8	$	38.6		24	%	$	77.8	$	66.9		16	%

Total International		82.6		85.1		(3	%)		162.4		168.7		(4	%)


Total X-ray Products	$	130.4	$	123.7		5	%	$	240.2	$	235.6		2	%


Other:	$	167.6	$	37.7		344	%	$	179.2	$	59.6		200	%


Total Net Orders:	$	862.8	$	681.5		27	%	$	1,468.9	$	1,274.3		15	%

For the second quarter and the first half of fiscal year 2012, both North America and the international region contributed to the growth in total Oncology Systems net orders over the respective year-ago periods. On a constant currency basis, Oncology Systems net orders grew at the same rate over the same year-ago periods.

For the second quarter of fiscal year 2012, the increase in North American Oncology Systems net orders over the second quarter of fiscal year 2011 was primarily due to the continued growth in demand for our service contracts, increased demand for our software products and demand for tumor tracking products offered by the recently acquired Calypso, which increases were partially offset by a decrease in net orders of our linear accelerators. The increase in international Oncology Systems net orders was primarily due to increased demand for our linear accelerators in Europe and Asia, increased demand for our software products in Asia and growth in demand for our service contracts in Asia and the rest of the world region. International Oncology Systems net orders also grew at the same rate on a constant currency basis in the second quarter of fiscal year 2012 over the prior year period.

For the first half of fiscal year 2012, the growth in North American Oncology Systems net orders was primarily due to the continued growth in demand for our service contracts, as well as increased demand for our software products and demand for tumor tracking products offered by recently acquired Calypso, which increases were partially offset by a decrease in demand for our linear accelerators. The increase in international Oncology Systems net orders was primarily due to increased demand for our linear accelerators and our software products in Europe and Asia, as well as for our service contracts in all international regions. When measured in constant currency, international Oncology Systems net orders grew 11% in the first half quarter of fiscal year 2012 over the first half of fiscal year 2011.

The trailing 12 months growth in net orders for Oncology Systems at the end of the second quarter of fiscal year 2012 and at the end of the previous three fiscal quarters were: an 8% total increase, with flat net orders in North America and a 16% increase for the international region, as of as of March 30, 2012; an 8% total increase, with a 1% decrease in North America and a 17% increase for the international region, as of December 30, 2011; an 8% total increase, with a 5% increase in North America and an 11% increase for the international region, as of September 30, 2011; a 10% total increase, with a 14% increase in North America and a 7% increase for the international region, as of July 1, 2011. Consistent with the historical pattern, we expect that Oncology Systems net orders will continue to experience regional fluctuations, even with an overall shift of orders towards international regions and emerging market countries. In addition, the availability of government programs that stimulate the purchase of healthcare products, such as the one in place in 2010 in Japan, has in the past affected and could in the future affect the demand for our products and/or revenues recognized from period to period, and could therefore make it difficult to compare our financial results.

For the second quarter and the first half of fiscal year 2012, the increases in X-ray Products net orders over the respective year-ago periods were due to increases in North American net orders, partially offset by declines in international net orders. In North America, the increases in X-ray Products net orders in the second quarter and the first half of fiscal year 2012 over the respective year-ago periods were primarily due to increased demand for our flat panel products partially offset by decreased demand for our X-ray tube products. In the international region, the decrease in X-ray Products net orders in the second quarter of fiscal year 2012 over the year-ago quarter was primarily due to decreased demand for flat panel products in Europe, partially offset by increased demand for X-ray tube products in Europe and Asia. For the first half of fiscal year 2012, the decrease in X-ray Products net orders over the first half of fiscal year 2011 was primarily due to decreased demand for our flat panel products in all international regions partially offset by increased demand for our X-ray tube products in all international regions.

The increases in net orders the “Other” category in the second quarter and the first half of fiscal year 2012 over the respective year-ago periods were primarily due to VPT’s recording of two proton therapy system orders in the second quarter of fiscal year 2012. In second quarter of fiscal year 2012, VPT recorded a $50 million order to supply a proton therapy system for a two-room proton therapy center at the PTC St. Petersburg Center of Nuclear Medicine of the International Institute of Biological Systems in Russia. In addition, the Company recorded a $77 million order (of which $73 million was allocated to VPT and the remaining amount was allocated Oncology Systems) to supply a proton therapy system and two TrueBeam linear accelerators for a five-room proton therapy center at the King Fahd Medical Center in Riyadh, Saudi Arabia. For the second quarter of fiscal year 2012, SIP also contributed $7 million to the increase in net orders the “Other” category over the second quarter of fiscal year 2011. For the first half of fiscal year 2012, the increase in VPT net orders was partially offset by a decline in SIP net orders.

Orders in any period may not be directly correlated to the level of revenues in any particular future quarter or period since the timing of revenue recognition will vary significantly based on the delivery requirements of individual orders, acceptance schedules and the readiness of individual customer sites for installation of our products. Moreover, certain types of orders, such as orders for software or newly introduced products in our Oncology Systems segment, typically take more time from order to completion of installation and acceptance than hardware or older products.

Backlog

Including the $156 million VPT backlog, our backlog at March 30, 2012 was $2.7 billion, which was an increase of 18% over the backlog at April 1, 2011. Our Oncology Systems backlog at March 30, 2012 was 10% higher than the backlog at April 1, 2011, which reflects a 23% increase for the international region and a 1% increase for North America.

Liquidity and Capital Resources

Liquidity is the measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, acquire businesses, repurchase shares of VMS common stock, and fund continuing operations. Our sources of cash have included operations, borrowings, stock option exercises and employee stock purchases and interest income. Our cash usage is actively managed on a daily basis to ensure the maintenance of sufficient funds to meet our needs.

Cash and Cash Equivalents

The following table summarizes our cash and cash equivalents:


(In millions)	March 30, 2012		September 30, 2011		Increase/ (Decrease)
Cash and cash equivalents	$	617	$	564	$	53

Our cash and cash equivalents increased $53 million from $564 million at September 30, 2011 to $617 million at March 30, 2012. The increase in cash and cash equivalents in the first half of fiscal year 2012 was due primarily to $159 million of cash generated from operating activities, $42 million of cash provided by stock option exercises and employee stock purchases, $6 million of cash provided by the excess tax benefits from share-based compensation and $3 million of cash received from repayment of note receivable from dpiX LLC. These increases were partially offset by $75 million used for the repurchase of shares of VMS common stock, $31 million of cash used in net payments under our credit facilities, $22 million of capital expenditures, $12 million used to fund a portion of our loan commitment to CPTC for financing the construction and startup operations of the Scripps Proton Therapy Center, $10 million of cash used for acquisition of Calypso, $4 million used to satisfy employee tax withholding requirements for employees who tendered VMS stock upon vesting of restricted common stock and restricted stock units and $4 million of cash used in repayment of long-term debt. In addition, foreign currency exchange rate changes in the first half of fiscal year 2012 increased cash and cash equivalents by $3 million.

At March 30, 2012, we had approximately $30 million, or 5%, of total cash and cash equivalents in the United States. Approximately $587 million, or 95%, of total cash and cash equivalents was held abroad and could be subject to additional taxation if it were repatriated to the United States. As of March 30, 2012, most of our cash and cash equivalents that were held abroad were in U.S. dollars and were primarily held as bank deposits. We have used our credit facilities to meet our cash needs from time to time and expect to continue to do so in the future. Borrowings under our credit facilities may be used for working capital, capital expenditures, permitted VMS stock repurchases, permitted acquisitions and other lawful corporate purposes.

See further discussion of our credit facility under “Cash Flows.”

Cash Flows


	Six Months Ended
(In millions)	March 30, 2012			April 1, 2011
Net cash flow provided by (used in):
Operating activities	$	159		$	206
Investing activities		(43	)		(48	)
Financing activities		(66	)		(93	)
Effects of exchange rate changes on cash and cash equivalents		3			(1	)

Net increase in cash and cash equivalents	$	53		$	64

Our primary cash inflows and outflows for the first half of fiscal year 2012, as compared to the first half of fiscal year 2011, were as follows:

•

In the first half of fiscal year 2012, we generated net cash from operating activities of $159 million, compared to $206 million in the first half of fiscal year 2011. The $47 million decrease in net cash from operating activities during the first half of fiscal year 2012 compared to the first half of fiscal year 2011 was driven primarily by a net decrease of operating cash flows of $43 million related to changes to working capital items between the two periods, a decrease in non-cash items of $3 million and a decrease of $1 million in net earnings. The decrease of operating cash flows related to working capital items was primarily due to changes in accounts receivable, inventories and accounts payables.

During the first half of fiscal year 2012, the major contributors to the net change in working capital items from fiscal year end 2011 were advance payment from customers, prepaid expenses and other current assets, inventories, accounts receivable and accrued expenses as follows:

•

Advance payment from customers increased $41 million due to increased orders.

•

Prepaid expenses and other current assets increased $33 million primarily due to guaranteed prepayments made under a commercial agreement for products that we resell, as well as timing of expense payments.

•

Inventories increased by $29 million due to anticipated customer demand for products during fiscal year 2012.

•

Accounts receivable increased $26 million primarily due to higher revenues and timing of collections.

•

Accrued expenses decreased by $24 million primarily due to a decrease in income taxes payable as a result of tax payments made in the first six months of fiscal year 2012 as well as a decrease in our effective tax rate.

We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, timing of product shipments and customer acceptance, accounts receivable collections, inventory management, and the timing and amount of tax and other payments. For additional discussion, please refer to the “Risk Factors” in Item 1A.

•

We used $43 million for investing activities in the first half of fiscal year 2012, compared to $48 million used in the first half of fiscal year 2011. During the first half of 2012, we used $22 million for purchases of property, plant and equipment, $12 million to fund a portion of our loan commitment to CPTC and $10 million to acquire Calypso. During the first half of fiscal year 2011, we used $39 million for purchases of property, plant and equipment and $8 million for the acquisition of all of the outstanding capital stock of a company.

•

Financing activities used net cash of $66 million in the first half of fiscal year 2012 compared to $93 million in the first half of fiscal year 2011. During the first half of fiscal year 2012, we used $75 million for the repurchase of VMS common stock, $31 million for net repayments under our credit facilities, $4 million to satisfy employee tax withholding requirements for employees who tendered shares of VMS common stock upon vesting of restricted common stock and restricted stock units and $4 million for net repayments of long-term debt. These uses were partially offset by $42 million of proceeds from employee stock option exercises and employee stock purchases and $6 million in excess tax benefits from share-based compensation. During the first half of fiscal year 2011, we used $238 million for the repurchase of VMS common stock and $68 million for related equity forward contracts, as well as $9 million to satisfy employee tax withholding requirements for employees who tendered shares of VMS common stock upon vesting of restricted common stock and restricted stock units. These uses were partially offset by $105 million of proceeds from employee stock option exercises, $100 million of net borrowings under credit facilities and $17 million in excess tax benefits from share-based compensation.

We expect our capital expenditures, which typically represent construction and/or purchases of facilities, manufacturing equipment, office equipment and furniture and fixtures, as well as capitalized costs related to the implementation of software applications, will be approximately 3.4% of revenues in fiscal year 2012. As further described in Note 15, “Variable Interest Entity” of the Notes to the Condensed Consolidated Financial Statements, we are participating, through our Swiss subsidiary, in a $165 million loan facility to CPTC, under which we have committed to loan up to $115.3 million to finance the construction and start-up operations of the Scripps Proton Therapy Center. As of March 30, 2012, we had loaned $31.6 million to CPTC and we expect CPTC to continue to draw down this facility during the construction and initial operation period through fiscal year 2014. The amounts and timing of loan drawdowns may change as a result of changes in construction progress and other factors. We expect to use cash held abroad to meet funding requirements under this loan facility. We may sell all or a portion of our participation in this loan facility before the end of the drawdown period in 2014. Upon the sale of all or a portion of this loan facility, we will not be required to make further loan advances for the portion of the facility that is sold.

We had a $300 million credit facility with Bank of America, N.A. (“BofA”) during the first half of fiscal year 2012 (the “Amended BofA Credit Facility”). See Note 7 “Credit Facilities” to the Condensed Consolidated Financial Statements for a discussion of the Amended BofA Credit Facility. As of March 30, 2012, $125 million was outstanding under the Amended BofA Credit Facility with a weighted average interest rate of 0.99% and we were in compliance with all covenants.

In April 2012, we entered into a new, five-year credit agreement with certain lenders and BofA as administrative agent (the “2012 Credit Facility”). The 2012 Credit Facility was arranged by Merrill Lynch, Pierce, Fenner & Smith Incorporated and enables us to borrow and have outstanding at any given time up to $300 million (the “2012 Credit Facility”). At that time we paid with a draw from the 2012 Credit Facility the then-outstanding balance of approximately $100 million under the Amended BofA Credit Facility.

The 2012 Credit Facility also includes a $50 million sub-facility for the issuance of letters of credit and permits swing line loans of up to $25 million. We also have the right to increase the aggregate commitments under the 2012 Credit Facility by up to $200 million, provided that the lenders are willing to provide increased commitments and certain other conditions are met. The 2012 Credit Facility is secured, subject to certain limitations on the amount secured, by a pledge of stock of certain of VMS’s present and future subsidiaries that are deemed to be material subsidiaries. All hedging or treasury management obligations entered into by us with a lender are also secured by the stock pledges. The 2012 Credit Facility must be guaranteed by certain of VMS’s material domestic subsidiaries under certain circumstances. The 2012 Credit Facility may be used for working capital, capital expenditures, permitted share repurchases, permitted acquisitions and other lawful corporate purposes.

The credit agreement contains affirmative and negative covenants applicable to us that are typical for credit facilities of this type, and that are subject to materiality and other qualifications, carve-outs, baskets and exceptions. We have also agreed to maintain certain financial covenants, including (i) a maximum consolidated leverage ratio, involving funded indebtedness and EBITDA and (ii) a minimum cash flow coverage.

In addition, VMS’s Japanese subsidiary (“VMS KK”) has an unsecured uncommitted credit agreement with Sumitomo Mitsui Banking Corporation that enables VMS KK to borrow and have outstanding at any given time a maximum of 3 billion Japanese Yen (the “Sumitomo Credit Facility”). The Sumitomo Credit Facility will expire on February 28, 2013. Borrowings under the Sumitomo Credit Facility accrue interest based on the basic loan rate announced by the Bank of Japan plus a margin of 0.5% per annum. As of March 30, 2012, 2 billion Japanese yen, or approximately $24.3 million, was outstanding under the Sumitomo Credit Facility with a weighted average interest rate of 0.67%.

See Note 7 “Credit Facilities” to the Condensed Consolidated Financial Statements for a discussion regarding the Amended BofA Credit Facility and the Sumitomo Credit Facility. See Note 18 “Subsequent Events” for a discussion of the 2012 Credit Facility.

The following table provides additional information regarding our short-term borrowings:


(Dollars in millions)	Second Quarter of Fiscal Year 2012
Amount outstanding (at end of period)	$	149
Weighted average interest rate (at end of period)		0.94	%

Average amount outstanding (during period)		158
Weighted average interest rate (during period)		0.98	%

Maximum month-end amount outstanding during period	$	175

Our liquidity is affected by many factors, some of which result from the normal ongoing operations of our business and some of which arise from uncertainties and conditions in the United States and global economies. Although our cash requirements will fluctuate as a result of the shifting influences of these factors, we believe that existing cash and cash equivalents and cash to be generated from operations and current or future credit facilities will be sufficient to satisfy anticipated commitments for capital expenditures and other cash requirements for at least the next 12 months. We currently anticipate that we will continue to utilize our available liquidity and cash flows from operations, as well as borrowed funds, to make strategic acquisitions, invest in the growth of our business, invest in advancing our systems and processes, repurchase VMS common stock and fund our loan commitment to CPTC.

Total debt as a percentage of total capital decreased to 10.1% at March 30, 2012 from 13.7% at September 30, 2011. The ratio of current assets to current liabilities increased to 1.80 to 1 at March 30, 2012 from 1.65 to 1 at September 30, 2011.

Days Sales Outstanding

Trade accounts receivable days sales outstanding (“DSO”) were 83 days at March 30, 2012 compared to 79 days at April 1, 2011. Excluding VPT, DSO were 78 days at March 30, 2012 compared to 78 days at April 1, 2011. Our accounts receivable and DSO are impacted by a number of factors, primarily including: the timing of product shipments; collections performance, payment terms, the mix of revenues from different regions and the continued sovereign debt crises in Europe. As of March 30, 2012, approximately 4% of our accounts receivable balance was related to customer contracts with remaining terms of more than one year.

Stock Repurchase Program

During the three months ended March 30, 2012, we settled an accelerated share repurchase agreement executed on August 25, 2011 with BofA (the “August 2011 Repurchase Agreement”). Pursuant to the August 2011 Repurchase Agreement, we paid to BofA $250 million and BofA delivered 3,849,638 shares of VMS common stock, representing approximately 85% of the shares expected to be repurchased. Under the terms of the August 2011 Repurchase Agreement, the specific number of shares that we ultimately repurchased was to be based on the volume weighted average share price of VMS common stock during the repurchase period, less a discount, such that we might be entitled to receive additional shares of VMS common stock from BofA or we might be required to deliver VMS shares or, at our option, make a cash payment to BofA. The repurchase period ended February 2012 and we received an additional 375,449 shares of VMS common stock, with a then market value of approximately $25 million, upon the settlement.

Including the 375,449 shares received upon the settlement of the August 2011 Repurchase Agreement, we repurchased a total of 1,500,000 shares of VMS common stock during the six months ended March 30, 2012, all of which were repurchased in the three months ended March 30, 2012. During the six months ended April 1, 2011, we repurchased 3,547,474 shares of VMS common stock, all of which were repurchased in the three months ended April 1, 2011, including shares of VMS common stock repurchased under earlier accelerated share repurchase agreements. Aggregate cash payments in connection with accelerated share repurchase agreements, if any, and for shares repurchased in the open market totaled $75.4 million during the three and six months ended March 30, 2012. Aggregate cash payments for such transactions for the three and six months ended April 1, 2011 totaled $306.1 million. All shares that were repurchased have been retired.

In February 2011, the VMS Board of Directors authorized the repurchase of 12 million shares of VMS common stock through the end of fiscal year 2012. As of March 30, 2012, 5,933,718 shares of VMS common stock remained available for repurchase under this repurchase authorization. Shares may be repurchased in the open market, in privately negotiated transactions (including accelerated share repurchases) or under Rule 10b5-1 share repurchase plans, and may be made from time to time or in one or more blocks.

Contractual Obligations

Long-term income taxes payable includes the liability for uncertain tax positions (including interest and penalties) and may also include other long-term tax liabilities. As of March 30, 2012, our liability for uncertain tax positions was $42.6 million. We believe that existing cash and cash equivalents and cash to be generated from operations and current or future credit facilities will be sufficient to satisfy any payment obligations that may arise related to our liability for uncertain tax positions.

We participate, through our Swiss subsidiary, in a $165 million loan facility to CPTC, under which we committed to loan up to $115.3 million, to finance the construction and startup operations of the Scripps Proton Therapy Center. As of March 30, 2012, we had loaned $31.6 million to CPTC and we expect CPTC to continue to draw down this facility during the construction and initial operation period through fiscal year 2014. The amounts and timing of loan drawdown may change due to changes in construction progress and other factors. We expect to use cash held abroad to meet funding requirements under this loan facility. We may sell all or a portion of our participation in this loan facility before the end of the drawdown period in 2014. Upon the sale of all or a portion of this facility, we will not be required to make further loan advances for the portion of the facility that is sold.

Under a commercial agreement, we agreed to make guaranteed prepayments to a third party for orders of their products that we will resell to end-user customers. As of March 30, 2012, we had remaining guaranteed prepayment obligations of $14 million in fiscal year 2012 and $21 million in fiscal year 2013 under this commercial agreement.

Except for the change in the outstanding balance under our credit facility and the other items discussed above, there has been no significant change to the other contractual obligations we reported in our 2011 Annual Report.

Contingencies

Environmental Remediation Liabilities

For a discussion of environmental remediation liabilities, see Note 9 , “Commitments and Contingencies – Environmental Remediation Liabilities” of the Notes to the Condensed Consolidated Financial Statements, which discussion is incorporated herein by reference.

Acquisition-Related Commitments/Obligations

When we acquired ACCEL Instruments GmbH (“ACCEL,” which has since changed its name to Varian Medical Systems Particle Therapy GmbH) in January 2007, ACCEL was involved in a contract-related lawsuit, which we settled by agreeing to perform commissioning services for a proton therapy system for a fixed-price contract (the “Fixed-Price Contract”). In the first quarter of fiscal year 2010, we entered into a new contract (the “New Contract”) to perform certain services for a fixed price. The balance of the loss accrual related to this contingency (the New Contract) was €0.9 million as of March 30, 2012. If the actual costs related to the contingency exceed the estimated amount or if the estimated loss increases, the variances will be recognized in the Condensed Consolidated Statements of Earnings in the periods in which these variances arise.

Other Matters

From time to time, we are a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters both in and outside the United States, arising in the ordinary course of our business or otherwise. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. See Note 9 , “Commitments and Contingencies—Other Matters” of the Notes to the Condensed Consolidated Financial Statements, which discussion is incorporated herein by reference.

Off-Balance Sheet Arrangements

In conjunction with the sale of our products in the ordinary course of business, we provide standard indemnification of business partners and customers for losses suffered or incurred for property damages, death and injury and for patent, copyright or any other intellectual property infringement claims by any third parties with respect to our products. The terms of these indemnification arrangements are generally perpetual. Except for losses related to property damages, the maximum potential amount of future payments we could be required to make under these arrangements is unlimited. As of March 30, 2012, we have not incurred any significant costs since the spin-offs of Varian, Inc. and Varian Semiconductor Equipment Associates, Inc. to defend lawsuits or settle claims related to these indemnification arrangements. As a result, we believe the estimated fair value of these arrangements is minimal.

We have entered into indemnification agreements with our directors and officers and certain of our employees that serve as officers or directors of our foreign subsidiaries that may require us to indemnify our directors and officers and those certain employees against liabilities that may arise by reason of their status or service as directors or officers, and to advance their expenses incurred as a result of any legal proceeding against them as to which they could be indemnified.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) amended ASC 210, “Balance Sheet” enhancing disclosure requirements about the nature of an entity’s right to offset and related arrangements associated with its financial instruments and derivative instruments. The new guidance requires the disclosure of the gross amounts subject to rights of set-off, amounts offset in accordance with the accounting standards followed, and the related net exposure. The new guidance will be effective for us beginning in the first quarter of fiscal 2014. The adoption of this amendment concerns disclosure only and we do not expect it to have an impact on our consolidated financial position, results of operations or cash flows.

In September 2011, the FASB amended ASC 350, “Intangibles – Goodwill and Other.” This amendment is intended to simplify how an entity tests goodwill for impairment and will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that the reporting unit’s fair value is less than its carrying amount. The amendment will be effective for us beginning in the first quarter of fiscal 2013 and early adoption is permitted. We do not expect this amendment to have a material impact on out consolidated financial position, results of operations and cash flows.

In June 2011, the FASB amended ASC 220, “Presentation of Comprehensive Income.” This amendment will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. In December 2011, the FASB issued another amendment which defers indefinitely this amendment to the extent it relates to the presentation of reclassification adjustments. The amended guidance, which must be applied retroactively, will be effective for us in the first quarter of fiscal year 2013. The adoption of this amendment concerns disclosure only and we do not expect it to have an impact on our consolidated financial position, results of operations or cash flows.

In May 2011, the FASB amended ASC 820, “Fair Value Measurement.” This amendment is intended to result in convergence between GAAP and International Financial Reporting Standards requirements for measurement of and disclosures about fair value. This guidance clarifies the application of existing fair value measurements and disclosures, and changes certain principles or requirements for fair value measurements and disclosures. The adoption of this amendment in the second quarter of fiscal year 2012 affected our disclosure only and did not have a material impact on our consolidated financial position, results of operations or cash flows.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to three primary types of market risks: credit risk, foreign currency exchange rate risk and interest rate risk.

Credit Risk

We are exposed to credit loss in the event of nonperformance by counterparties on the foreign currency forward contracts used in hedging activities. These counterparties are large international and regional financial institutions and to date, no such counterparty has failed to meet its financial obligation to us under such contracts. In addition, cash and cash equivalents held with financial institutions may exceed the Federal Deposit Insurance Corporation insurance limits or similar limits in foreign jurisdictions. We also may need to rely on our credit facilities as described below under “Interest Rate Risk.” Our access to our cash and cash equivalents or ability to borrow could be reduced if one or more financial institutions with which we have deposits or from which we borrow should fail or otherwise be adversely impacted by conditions in the financial or credit markets. Conditions such as those we experienced as a result of the economic downturn of 2008 and accompanying contraction in the credit markets heighten these risks.

Foreign Currency Exchange Rate Risk

As a global entity, we are exposed to movements in foreign currency exchange rates. These exposures may change over time as business practices evolve. Adverse foreign currency rate movements could have a material negative impact on our financial results. Our primary exposures related to foreign currency denominated sales and purchases are in Europe, Asia, Australia and Canada.

We have many transactions denominated in foreign currencies and address certain of those financial exposures through a risk management program that includes the use of derivative financial instruments. We sell products throughout the world, often in the currency of the customer’s country, and may hedge certain of these larger foreign currency transactions when they are not transacted in the subsidiaries’ functional currency or in U.S. dollars. The foreign currency sales transactions that fit our risk management policy criteria are hedged with forward contracts. We may use other derivative instruments in the future. We enter into foreign currency forward contracts primarily to reduce the effects of fluctuating foreign currency exchange rates. We do not enter into forward contracts for speculative or trading purposes. The forward contracts range from one to twelve months in maturity.

We also hedge the balance sheet exposures from our various foreign subsidiaries and business units. We enter into foreign currency forward contracts to minimize the short-term impact of currency fluctuations on assets and liabilities denominated in currencies other than the U.S. dollar functional currency.

The notional values of our sold and purchased foreign currency forward contracts outstanding as of March 30, 2012 were $275.1 million and $59.7 million, respectively. The notional amounts of forward contracts are not a measure of our exposure. The fair value of forward contracts generally reflects the estimated amounts that we would receive or pay to terminate the contracts at the reporting date, thereby taking into account and approximating the current unrealized and realized gains or losses of the open contracts. A move in foreign currency exchange rates would change the fair value of the contracts, and the fair value of the underlying exposures hedged by the contracts would change in a similar offsetting manner.

Interest Rate Risk

Our market risk exposure to changes in interest rates depends primarily on our investment portfolio and short-term borrowings. Our investment portfolio consisted of cash and cash equivalents and a short-term investment as of March 30, 2012. The principal amount of cash and cash equivalents at March 30, 2012 totaled $617 million with a weighted average interest rate of 0.25%. At March 30, 2012, our short-term investment represented a loan of $31.6 million to CPTC, which bears interest at LIBOR plus 6.25% per annum with a minimum interest rate of 8.25% per annum.

The Amended BofA Credit Facility (including the Japanese Line of Credit) allowed us to borrow up to a maximum amount of $300 million. Borrowings under the Amended BofA Credit Facility (outside of the Japanese Line of Credit) accrued interest based on LIBOR, the federal funds rate, or BofA’s prime rate plus a margin. Borrowings under the Japanese Line of Credit accrued interest at the basic loan rate announced by the Bank of Japan plus a margin. On April 27, 2012, we replaced the Amended BofA Credit Facility with the 2012 Credit Facility, interest on which is based on (i) a Eurodollar rate plus a margin or (ii) a base rate of the highest of (a) the federal funds rate plus 0.5%, (b) BofA’s announced prime rate or (c) the Eurodollar rate plus 1%, plus a margin. In addition, the Sumitomo Credit Facility allows us to borrow up to a maximum amount of 3 billion Japanese yen. Borrowings under the Sumitomo Credit Facility accrue interest based on the basic loan rate announced by the Bank of Japan plus a margin.

We are affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable under the our credit facilities. As of March 30, 2012, $149 million was outstanding under our credit facilities with a weighted average interest rate of 0.94%. If the amount outstanding under our credit facilities remained at this level for an entire year and interest rates increased or decreased (due to changes in LIBOR, the federal funds rate, BofA’s prime rate or the Bank of Japan basic loan rate) by 1%, our annual interest expense would increase or decrease, respectively, by an additional $1.5 million. See a detailed discussion of our credit facilities in Item 2, “MD&A – Liquidity and Capital Resources.”

In addition, we had $12.5 million of long-term debt (including the current maturities of long-term debt) outstanding at March 30, 2012 that carried at a weighted average fixed interest rate of 6.7% with principal payments due in various installments over a three-year period. To date, we have not used derivative financial instruments to hedge the interest rate of our investment portfolio, short-term borrowings or long-term debt, but may consider the use of derivative instruments in the future.

The estimated fair value of our cash and cash equivalents (95% of which was held abroad at March 30, 2012 and could be subject to additional taxation if it were repatriated to the United States) and the estimated fair value of our short-term borrowings under our credit facilities approximated the principal amounts reflected above based on the maturities of these financial instruments. The fair value of our loan to CPTC was $31.6 million at March 30, 2012, which was estimated based on the income approach using key assumptions that include estimated probabilities of default by the counterparty and the LIBOR.

The fair value of our long-term debt was estimated to be $13.3 million at March 30, 2012. The estimated fair value of long-term debt was based on the then-current rates available to us for debt of similar terms and remaining maturities and also took into consideration default and credit risk. We determined the estimated fair value by using available market information and commonly accepted valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value.

Although payments under certain of our operating leases for our facilities are tied to market indices, these operating leases do not expose us to material interest rate risk.

Item 4.

Controls and Procedures

(a)

Disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) required by Exchange Act Rules 13a-15(b) or 15d-15(b), our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b)

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the second quarter of fiscal year 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to various legal proceedings and claims that are discussed in Note 9, “Commitments and Contingencies” to the Condensed Consolidated Financial Statements, which discussion is incorporated by reference into this item.

Item 1A. Risk Factors

The following risk factors and other information included in this Quarterly Report on Form 10-Q and in our 2011 Annual Report should be carefully considered. Although the risk factors described below are the ones management deems significant, additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks actually occur, our business, operating results, and financial condition could be adversely affected.

IF OUR PRODUCTS AND PRODUCT LINES FAIL TO CONTINUE TO MEET CUSTOMER DEMANDS, OUR PRODUCTS MAY BECOME LESS USEFUL OR OBSOLETE AND OUR OPERATING RESULTS WILL SUFFER

We believe that IMRT, including volumetric modulated arc therapy, and IGRT have become accepted standards for treatment in the radiation oncology market. Demand for our IMRT and IGRT products have been the drivers for our net orders and revenues in Oncology Systems and, because of the significance of Oncology Systems, on our business in general. We have introduced new products such as TrueBeam, a new line of linear accelerators for radiotherapy and radiosurgery, and UNIQUE, a low-energy linear accelerator for more price sensitive markets in international regions, to meet the evolving needs of our IMRT and IGRT customers. We believe TrueBeam will be a valuable tool for clinicians in the fight against cancer and to stimulate faster replacement of older systems in our installed base. We also believe that our RapidArc products for volumetric modulated arc therapy are a significant advance in IMRT treatments and can help drive longer term demand for our linear accelerators and IMRT- and IGRT-related products. Orders for these new products and products lines have contributed greatly to our recent orders and revenue growth and are keys to our future success. If our customers do not purchase these products or if future studies call into question the effectiveness of these or our other IMRT or IGRT products (including other volumetric modulated arc therapy products) or show negative side effects, or if other more effective technologies are introduced, our net orders, revenues and financial results could suffer. As more institutions buy or upgrade to achieve IMRT and IGRT capabilities, the market for these products (including volumetric modulated arc therapy products) may become saturated. Alternatively, the marketplace may conclude that functions and features of our products should no longer be an element of a generally accepted diagnostic or treatment regimen. If this occurs, the market for our products may be adversely affected and they may become less useful or obsolete.

Our X-ray Products business sells products primarily to a small number of imaging system OEM customers who use our products in their medical diagnostic and industrial imaging systems. To succeed, we must provide X-ray tube and flat panel detector products that meet customer demands for lower cost, better product quality and superior technology and performance. If we are unable to continue to innovate our X-ray Products technology and anticipate our customers’ demands in the areas of cost, quality, technology and performance, then our customers may purchase from other tube or panel manufacturers (including the in-house operations of some of these customers), which would negatively impact this business.

In both the Oncology Systems and X-ray Products businesses, and in our other product lines, we may be unable to accurately anticipate changes in our markets and the direction of technological innovation and demands of our customers. Our competitors may develop products or processes that are superior to what we can then offer. If this occurs, the market for our products may be adversely affected and they may become less useful or obsolete. Any development adversely affecting the markets for our products would force us to reduce production volumes or to discontinue manufacturing one or more of our products or product lines and would reduce our revenues and earnings.

OUR SUCCESS DEPENDS ON THE SUCCESSFUL DEVELOPMENT, INTRODUCTION AND COMMERCIALIZATION OF NEW GENERATIONS OF PRODUCTS AND ENHANCEMENTS TO EXISTING PRODUCT LINES

Rapid change and technological innovation characterize the Oncology Systems market. Our products often have long development and government approval cycles, so we must anticipate changes in the marketplace, in technology and in customer demands. Our success depends on the successful development, introduction and commercialization of new generations of products, treatment systems and enhancements to and/or simplification of existing product lines. Our Oncology Systems products, including new products such as TrueBeam and RapidArc, are technologically complex and must keep pace with, if not be superior to, the products of our competitors. Our X-ray Products business must also continually develop improved and lower cost products. We are investing in long-term growth initiatives, such as development of our SIP and VPT businesses, and expect that we will need to invest more to develop and commercialize the products and technology for these businesses. Accordingly, many of our products may require significant planning, design, development and testing, as well as significant capital commitments, involvement of senior management and other investments on our part. We may need to spend more time and money than we expect to develop and introduce new products or enhancements and, even if we succeed, they may not be sufficiently profitable that we are able to recover all or a meaningful part of our investment. Once introduced, new products may adversely impact orders and sales of our existing products, or make them less desirable or even obsolete, and could adversely impact our revenues and operating results. In addition, certain costs, including installation and warranty, associated with new products may be proportionately greater than other products, and may therefore adversely affect our gross and operating margins. If we are unable to lower these costs over time, our operating results could be adversely affected. Compliance with regulations, competitive alternatives, and shifting market preferences may also impact our success with new products or enhancements.

Our ability to successfully develop and introduce new products and product enhancements and simplifications, and the revenues and costs associated with these efforts, are affected by our ability to:

•

properly identify customer needs;

•

prove the feasibility of new products;

•

limit the time required from proof of feasibility to routine production;

•

comply with internal quality assurance systems and processes timely and efficiently;

•

limit the timing and cost of regulatory approvals;

•

accurately predict and control costs associated with inventory overruns caused by phase-in of new products and phase-out of old products;

•

price our products competitively and profitably;

•

manufacture, deliver and install our products in sufficient volumes on time, and accurately predict and control costs associated with manufacturing, installation, warranty and maintenance of the products;

•

appropriately manage our supply chain;

•

manage customer acceptance and payment for products;

•

manage customer demands for retrofits of both new and old products; and

•

anticipate and compete successfully with competitors.

Furthermore, we cannot be sure that we will be able to successfully develop, manufacture or introduce new products, treatment systems or enhancements, the roll-out of which involves compliance with complex quality assurance processes, including the QSR of the FDA. Failure to complete these processes timely and efficiently could result in delays that could affect our ability to attract and retain customers, or could cause customers to delay or cancel orders, causing our revenues and operating results to suffer.

New products generally take longer to install than well-established products. Because a portion of a product’s revenue is generally tied to installation and acceptance of the product, our recognition of revenue associated with new products may be deferred longer than expected. In addition, even if we succeed in our product introductions, potential customers may not

decide to upgrade their equipment, or customers may delay delivery of some of our more sophisticated products because of the longer preparation and renovation of treatment rooms required. As a result, our revenues and other financial results could be adversely affected.

SLIGHTLY MORE THAN HALF OF OUR REVENUES ARE INTERNATIONAL, AND ECONOMIC, POLITICAL AND OTHER RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS COULD ADVERSELY AFFECT OUR SALES OR MAKE THEM LESS PREDICTABLE

We conduct business globally. Our international revenues accounted for approximately 54% and 54% of revenues from continuing operations during the second quarter of fiscal years 2012 and 2011, respectively. As a result, we must provide significant service and support globally. We intend to continue to expand our presence in international markets and expect to expend significant resources in doing so, although we cannot be sure we will be able to meet our sales, service and support objectives or obligations, or recover our investments. Accordingly, our future results could be harmed by a variety of factors, including:

•

the difficulties in enforcing agreements and collecting receivables through many foreign country’s legal systems;

•

the longer payment cycles associated with many foreign customers;

•

currency fluctuations;

•

changes in the political, regulatory, safety or economic conditions in a country or region;

•

the imposition by foreign countries of additional taxes, tariffs or other restrictions on foreign trade;

•

the lower sales prices and gross margins usually associated with sales of our products in the international region;

•

the shorter period in the international region from placement of any order to revenue recognition;

•

any inability to obtain export licenses and other required export or import licenses or approvals;

•

failure to comply with export laws and requirements, which may result in civil or criminal penalties and restrictions on our ability to export our products, particularly our industrial linear accelerator products;

•

failure to obtain proper business licenses or other documentation, or to otherwise comply with local laws and requirements regarding marketing, sales, service or any other business we conduct in a foreign jurisdiction, which may result in civil or criminal penalties and restrictions on our ability to conduct business in that jurisdiction; and

•

the possibility that it may be more difficult to protect our intellectual property in foreign countries.

Although our orders and sales fluctuate from period to period, in recent years our international region has represented a larger share of our business. The more we depend on sales in the international region, the more vulnerable we become to these factors.

As of March 30, 2012, 95% of our cash and cash equivalents were held abroad. If these funds were repatriated to the United States, they could be subject to additional taxation and our overall tax rate and our results of operations could suffer.

Our effective tax rate is impacted by tax laws in both the United States and in the respective countries in which our international subsidiaries do business. Earnings from our international region are generally taxed at rates lower than U.S. rates. A change in the percentage of our total earnings from the international region, or a change in the mix of particular tax jurisdictions within the international region could cause our effective tax rate to increase or decrease. Also, we are not currently taxed in the United States on certain undistributed earnings of certain foreign subsidiaries. These earnings could become subject to incremental foreign withholding or U.S. federal and state taxes should they either be deemed or actually remitted to the United States, or if tax laws change, in which case our financial results could be adversely affected. In addition, there have been proposals in U.S. law that would significantly change U.S. taxation of U.S.-based multinational corporations. Although we cannot predict whether or in what form Congress would enact any such proposals, legislation of this type could negatively impact our effective tax rate and adversely affect our financial results.

OUR RESULTS HAVE BEEN AND MAY CONTINUE TO BE AFFECTED BY CONTINUING WORLDWIDE ECONOMIC INSTABILITY

Since fiscal year 2008, the global economy has been impacted by the sequential effects of the subprime lending crisis; the credit market crisis; collateral effects on the finance and banking industries; volatile currency exchange rates and energy costs; concerns about inflation (deflation), slower economic activity, consumer confidence, corporate profits and capital spending, adverse business conditions, liquidity and unemployment; concerns over the downgrade of the sovereign debt of the United States and several European countries; continued sovereign debt and recession uncertainties in Europe and other foreign countries and concerns regarding slowing growth in China. In many markets, these conditions have shrunk capital equipment budgets, slowed decision-making, made financing for large equipment purchases more expensive and more time consuming to obtain, and made it difficult for our customers and our vendors to accurately forecast and plan future business activities and reduced their confidence. This, in turn, has caused our customers to freeze, delay or dramatically reduce purchases and capital project expenditures. Even though economic activity has improved since the low point of the crisis, growth rates have faltered. Project delays may continue, particularly as they relate to large scale or government projects, which may be affected by austerity measures. Alternatively, in the past, some countries, including Japan, have adopted and may in the future adopt government stimulus programs to revitalize their economies and improve healthcare and medical services. The availability of stimulus programs in the future could positively affect our results in one period and adversely affect our results in other periods, making it difficult for investors to compare our financial results between fiscal periods. Weak economic recovery may also disrupt supply if vendors consolidate or go out of business. As with our customers and vendors, these economic conditions make it more difficult for us to accurately forecast and plan our future business activities. Historically, our business has felt the effects of market trends later than other sectors in the healthcare industry, such as diagnostic radiology, and we may experience the effects of any economic recovery later than others in the healthcare industry. A continued weak or deteriorating healthcare market would inevitably adversely affect our business, financial conditions and results of operations.

WE FACE SIGNIFICANT COSTS IN ORDER TO COMPLY WITH LAWS AND REGULATIONS APPLICABLE TO THE MANUFACTURE AND DISTRIBUTION OF OUR PRODUCTS, AND FAILURE OR DELAYS IN OBTAINING REGULATORY CLEARANCES OR APPROVALS, OR FAILURE TO COMPLY WITH APPLICABLE LAWS AND REGULATIONS COULD PREVENT US FROM DISTRIBUTING OUR PRODUCTS, REQUIRE US TO RECALL OUR PRODUCTS AND RESULT IN SIGNIFICANT PENALTIES

Our products and those of OEMs that incorporate our products are subject to extensive and rigorous government regulation in the United States. Compliance with these laws and regulations is expensive and time-consuming, and failure to comply with these laws and regulations could adversely affect our business. Furthermore, public media reports on misadministrations of radiotherapy in patients and focus on the role of the FDA in regulating medical devices has led to increased scrutiny of medical device companies and an increased likelihood of enforcement actions.

U.S. laws governing marketing a medical device. In the United States, as a manufacturer and seller of medical devices and devices emitting radiation or utilizing radioactive by-product material, we and some of our suppliers and distributors are subject to extensive regulation by federal governmental authorities, such as the FDA, NRC and state and local regulatory agencies, such as the State of California, to ensure the devices are safe and effective and comply with laws governing products which emit, produce or control radiation. These regulations govern, among other things, the design, development, testing, manufacturing, packaging, labeling, distribution, import/export, sale and marketing and disposal of our products.

Unless an exception applies, the FDA requires that the manufacturer of a new medical device or a new indication for use of, or other significant change in, existing currently marketed medical device obtain either 510(k) pre-market notification clearance or PMA before it can market or sell those products in the United States. Modifications or enhancements to a product that could significantly affect its safety or effectiveness, or that would constitute a major change in the intended use of the device, technology, materials, labeling, packaging, or manufacturing process may also require a new 510(k) clearance. The FDA has recently issued a draft guidance that, if finalized and implemented, will result in manufacturers needing to seek a significant number of new clearances for changes made to legally marketed devices. Although manufactures make the initial determination whether a change to a cleared device requires a new 510(k) clearance, we cannot assure you that the FDA will agree with our decisions not to seek additional approvals or clearances for particular modifications to our products or that we will be successful in obtaining new 510(k) clearances for modifications. Obtaining clearances or approvals is time-consuming, expensive and uncertain. We may not be able to obtain the necessary clearances or approvals or may be unduly delayed in doing so, which could harm our business. Furthermore, even if we are granted regulatory clearances or approvals,

they may include significant limitations on the indicated uses of the product, which may limit the market for the product. If we were unable to obtain required FDA clearance or approval for a product or unduly delayed in doing so, or the uses of that product were limited, our business could suffer. In the past, in the United States, our devices have generally been subject to 510(k) clearance or exempt from 510(k) clearance. The 510(k) clearance process is generally less time-consuming, expensive and uncertain than the PMA process. However, there are some in the regulatory field who believe that certain medical devices should be required to use the PMA approval process, or a special more time-consuming 510(k) clearance process, rather than the current 510(k) clearance process. If we were required to use either of these lengthy processes for future products or product modifications, it could delay or prevent release of the proposed products or modifications, which could harm our business. The FDA recently released its Draft Guidance Document on the 510(k). We are currently analyzing how this plan, if fully implemented, may affect us and our ability to obtain product clearances.

Further, as we enter new businesses or pursue new business opportunities, such as opportunities that require clinical trials, we may become subject to additional laws, rules and regulations, including FDA rules and regulations that are applicable to the clinical trial process and protection of study subjects. Becoming familiar with and implementing the infrastructure necessary to comply with these laws, rules and regulations could be quite costly. In addition, failure to comply with these laws, rules and regulations could delay the introduction of new products and could adversely affect our business.

Quality systems, audits and failure to comply. Our manufacturing operations for medical devices, and those of our third-party manufacturers, are required to comply with the FDA’s QSR, as well as other federal and state regulations for medical devices and radiation emitting products. The FDA makes announced and unannounced periodic and on-going inspections of medical device manufacturers to determine compliance with QSR and in connection with these inspections issues reports, known as Form FDA 483 reports when the FDA believes the manufacturer has failed to comply with applicable regulations and/or procedures. If observations from the FDA issued on Form FDA 483 reports are not addressed and/or corrective action taken in a timely manner and to the FDA’s satisfaction, the FDA may issue a Warning Letter and/or proceed directly to other forms of enforcement action. Similarly, if a Warning Letter were issued, prompt corrective action to come into compliance would be required. Failure to respond timely to Form FDA 483 observations, a Warning Letter or other notice of noncompliance and to promptly come into compliance could result in the FDA bringing enforcement action against us, which could include the total shutdown of our production facilities, denial of importation rights to the U.S. for products manufactured in overseas locations, adverse publicity and criminal and civil fines. The expense and costs of any corrective actions that we may take, which may include products recalls, correction and removal of products from customer sites and/or changes to our product manufacturing and quality systems, could adversely impact our financial results and may also divert management resources, attention and time. Additionally, if a Warning Letter were issued, customers could delay purchasing decisions or cancel orders, and we could face increased pressure from our competitors who could use the Warning Letter against us in competitive sales situations, either of which could adversely affect our reputation, business and stock price. We recently completed our final response to the FDA for the Form FDA 483 observations issued in May 2011 related to the inspections of our Oncology Systems manufacturing facilities located in Helsinki, Finland and Haan, Germany. These observations generally included issues with complaint investigations, corrective actions and preventive actions, filings required under medical device reporting regulations and purchasing controls. While in the past, we have received Form 483 observations that we successfully resolved with the FDA, we cannot be certain that we will have similar success in promptly resolving these observations.

In addition, we are required to timely file various reports with the FDA, including reports required by the medical device reporting regulations (“MDRs”), that require that we report to regulatory authorities if our devices may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur. If these reports are not filed timely, regulators may impose sanctions and sales of our products may suffer, and we may be subject to product liability or regulatory enforcement actions, all of which could harm our business.

If we initiate a correction or removal of a device to reduce a risk to health posed by the device, we would be required to submit a publicly available Correction and Removal report to the FDA and in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a device recall which could lead to increased scrutiny by the FDA, other international regulatory agencies and our customers regarding the quality and safety of our devices. Furthermore, the submission of these reports have been and could be used by competitors against us in competitive situations and cause customers to delay purchase decisions, cancel orders or adversely affect our reputation.

Our medical devices utilizing radioactive material are subject to the NRC clearance and approval requirements, and the manufacture and sale of these products are subject to extensive federal and state regulation that varies from state to state and among regions. Our manufacture, distribution, installation and service of medical devices utilizing radioactive material or emitting radiation also requires us to obtain a number of licenses and certifications for these devices and materials. Service of these products must also be in accordance with a specific radioactive materials license. Obtaining licenses and certifications may be time consuming, expensive and uncertain. In addition, we are subject to a variety of environmental laws regulating our manufacturing operations and the handling, storage, transport and disposal of hazardous materials, and which impose liability for the cleanup of any contamination from these materials. In particular, the handling and disposal of radioactive materials resulting from the manufacture, use or disposal of our products may impose significant costs and requirements. Disposal sites for the lawful disposal of materials generated by the manufacture, use or decommissioning of our products may no longer accept these materials in the future, or may accept them on unfavorable terms.

The FDA and the FTC also regulate advertising and promotion of our products to ensure that the claims we make are consistent with our regulatory clearances, that there are adequate and reasonable scientific data to substantiate the claims and that our promotional labeling and advertising is neither false nor misleading in any respect. If the FDA or FTC determines that any of our advertising or promotional claims are misleading, not substantiated or not permissible, we may be subject to enforcement actions, including Warning Letters, and may be required to revise our promotional claims and make other corrections or restitutions.

If we or any of our suppliers, distributors, agents or customers fail to comply with FDA, FTC and other applicable U.S. regulatory requirements or are perceived to potentially have failed to comply, we may face:

•

adverse publicity affecting both us and our customers;

•

increased pressures from our competitors;

•

investigations by governmental authorities or Warning Letters;

•

fines, injunctions, and civil penalties;

•

partial suspensions or total shutdown of production facilities, or the imposition of operating restrictions;

•

increased difficulty in obtaining required FDA clearances or approvals;

•

losses of clearances or approvals already granted;

•

seizures or recalls of our products or those of our customers;

•

delays in purchasing decisions by customers or cancellation of existing orders;

•

the inability to sell our products;

•

difficulty in obtaining product liability or operating insurance at a reasonable cost, or at all; and

•

civil fines and criminal prosecutions.

Other applicable U.S. regulations. As a participant in the healthcare industry, we are also subject to extensive laws and regulations protecting the privacy and integrity of patient medical information that we receive, including HIPAA, “fraud and abuse” laws and regulations, including physician self-referral prohibitions, and false claims laws. From time to time, these laws and regulations may be revised or interpreted in ways that could make it more difficult for our customers to conduct their businesses, such as recent proposed revisions to the laws prohibiting physician self-referrals, and such revisions could have an adverse effect on the demand for our products, and therefore our business and results of operations. We also must comply with numerous federal, state and local laws of more general applicability relating to such matters as safe working conditions, manufacturing practices and fire hazard control.

The laws and regulations and their enforcement are constantly undergoing change, and we cannot predict what effect, if any, changes to these laws and regulations may have on our business. For example, HIPAA was amended by the HITECH Act, enacted as part of the American Recovery and Reinvestment Act of 2009. The HITECH Act significantly increases the civil money penalties for violations of patient privacy rights protected under HIPAA. Furthermore, business associates who have access to patient health information provided by hospitals and healthcare providers are now directly subject to HIPAA, including the new enforcement scheme and inspection requirements. Moreover, there has been a trend in recent years toward more stringent regulation and enforcement of requirements applicable to medical device manufacturers who receive or have access to patient health information.

Government regulation also may cause considerable delay or even prevent the marketing and full commercialization of future products or services that we may develop, and/or may impose costly requirements on our business. Insurance coverage is not commercially available for violations of law, including the fines, penalties or investigatory costs that may flow to us as the consequence of regulatory violations; consequently, we do not have insurance that would cover this type of liability.

COMPLIANCE WITH FOREIGN LAWS AND REGULATIONS APPLICABLE TO THE MANUFACTURE AND DISTRIBUTION OF OUR PRODUCTS MAY BE COSTLY, AND FAILURE TO COMPLY MAY RESULT IN SIGNIFICANT PENALTIES

Regulatory requirements affecting our operations and sales outside the United States vary from country to country, often differing significantly from those in the United States. In general, outside the United States, our products are regulated as medical devices by foreign governmental agencies similar to the FDA.

Marketing a medical device internationally. In order for us to market our products internationally, we must obtain clearances or approvals for products and product modifications. These processes (including for example in the European Union (“EU”), the European Economic Area (“EEA”), Switzerland, China, Japan and Canada) can be time consuming, expensive and uncertain, which can delay our ability to market products in those countries. Delays in receipt of or failure to receive regulatory approvals, the inclusion of significant limitations on the indicated uses of a product, the loss of previously obtained approvals or failure to comply with existing or future regulatory requirements could restrict or prevent us from doing business in a country or subject us to a variety of enforcement actions and civil or criminal penalties, which would adversely affect our business.

Within the EEA, we must affix a CE mark, a European marking of conformity that indicates that a product meets the essential requirements of the Medical Device Directive. This conformity to the Medical Device Directive is done through self-declaration and is verified by an independent certification body, called a “Notified Body.” Once clearance is obtained and the CE mark is affixed to the device, the Notified Body will regularly audit us to ensure that we remain in compliance with the applicable European laws and Medical Device Directive. By affixing the CE mark marking to our product, we are certifying that our products comply with the laws and regulations required by the EEA countries, thereby allowing the free movement of our products within these countries and others that accept CE mark standards. If we cannot support our performance claims and demonstrate compliance with the applicable European laws and Medical Device Directive, we would lose our right to affix the CE mark to our products, which would prevent us from selling our products within the EU/EEA/Switzerland territory. Significant revisions to some of the applicable regulations governing requirements for medical devices in the EU/EEA/Switzerland went into effect in March 2010. These revisions have introduced additional uncertainty into the marketing authorization process for medical devices in Europe. Until medical device manufacturers and European regulatory agencies, including Notified Bodies and “competent authorities,” have greater experience with interpreting and applying the revised regulations, we may be subject to risks associated with additional testing, modification, certification or amendment of our existing market authorizations, or we may be required to modify products already installed at our customers’ facilities in order to comply with the official interpretations of these revised regulations.

In addition, we are required to timely file various reports with international regulatory authorities, including reports required by international adverse event reporting regulations, that require that we report to regulatory authorities if our devices may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur. If these reports are not timely filed, regulators may impose sanctions and sales of our products may suffer, and we may be subject to product liability or regulatory enforcement actions, all of which could harm our business.

Further, as we enter new businesses or pursue new business opportunities internationally, such as opportunities that require clinical trials, we may become subject to additional laws, rules and regulations. Becoming familiar with and implementing the infrastructure necessary to comply with these laws, rules and regulations could be quite costly. In addition, failure to comply with these laws, rules and regulations could delay the introduction of new products and could adversely affect our business.

Manufacturing and selling a device internationally. We are also subject to laws and regulations that apply to manufacturers of radiation emitting devices and products utilizing radioactive materials, as well as laws and regulations of general

applicability relating to matters such as environmental protection, safe working conditions, manufacturing practices and other matters. These are often comparable to, if not more stringent than, the equivalent regulations in the United States. Sales overseas are also affected by regulation of matters such as product standards, packaging, labeling, environmental and product recycling requirements, import and export restrictions, tariffs, duties and taxes.

In some countries, we rely on our foreign distributors and agents to assist us in complying with foreign regulatory requirements, and we cannot be sure that they will always do so. If we or any of our suppliers, distributors, agents or customers fail to comply with applicable international regulatory requirements or are perceived to potentially have failed to comply, we may face:

•

adverse publicity affecting both us and our customers;

•

investigations by governmental authorities;

•

fines, injunctions, civil penalties and criminal prosecutions;

•

increased difficulty in obtaining required approvals in foreign countries;

•

losses of clearances or approvals already granted;

•

seizures or recalls of our products or those of our customers;

•

delays in purchasing decisions by customers or cancellation of existing orders; and

•

the inability to sell our products in or to import our products into such countries.

Other applicable international regulations. We are subject to laws and regulations in foreign countries covering data privacy and other protection of health and employee information. Particularly within the EU/EEA/Switzerland area, data protection legislation is comprehensive and complex and there has been a recent trend toward more stringent enforcement of requirements regarding protection and confidentiality of personal data. Data protection authorities from the different member states of the EU may interpret the legislation differently, which adds to this complexity, and data protection is a dynamic field where guidance is often revised. Fully understanding and implementing this legislation could be quite costly and timely, which could adversely affect our business. Additionally, in some instances, in order to fulfill the requirements of applicable U.S. law relating to data privacy, we may be faced with deciding whether to comply with EU/EEA/Switzerland data protection rules. Failure or partial failure to comply with data protection rules and regulations across the EU/EEA/Switzerland area could result in substantial monetary fines.

We are also subject to international “fraud and abuse” laws and regulations, as well as false claims and misleading advertisement laws. From time to time, these laws and regulations may be revised or interpreted in ways that could make it more difficult for our customers to conduct their businesses, which could have an adverse effect on the demand for our products, and therefore our business and results of operations. The laws and regulations and their enforcement are constantly undergoing change, and we cannot predict what effect, if any, changes to these laws and regulations may have on our business.

THE “AFFORDABLE HEALTHCARE FOR AMERICA ACT” INCLUDES PROVISIONS THAT MAY ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS, INCLUDING AN EXCISE TAX ON THE SALES OF MOST MEDICAL DEVICES

On March 23, 2010, President Obama signed into law the Affordable Health Care for America Act. A decision regarding the constitutionality of the Affordable Health Care for America Act is currently pending before the U.S. Supreme Court, and we do not know what portions of the Act, if any, will survive. While we are continuing to evaluate this legislation and its potential impact on our business, should it survive constitutional challenge, it may adversely affect the demand for our products and services, and therefore our financial position and results of operations, possibly materially.

Specifically, one of the components of the new law is a 2.3% excise tax on sales of most medical devices, which include our Oncology Systems products, starting in 2013. The Congressional Budget Office estimates that the total cost to the medical device industry could exceed $20 billion over ten years. This tax may put increased pressure on medical device manufacturers and purchasers, and may lead our customers to reduce their orders for products we produce or to request that we reduce the prices we charge for our products in order to offset the tax. Other elements of this new legislation, including comparative effectiveness research, an independent payment advisory board, payment system reforms (including shared savings pilots) and the reporting of certain payments by us to healthcare professionals and hospitals (the “Physician Payment

Sunshine Act”), could meaningfully change the way healthcare is developed and delivered, and may materially impact numerous aspects of our business, including the demand and availability of our products, the reimbursement available for our products from governmental and third-party payors, and reduced medical procedure volumes.

Various healthcare reform proposals have also emerged at the state level, and we are unable to predict which, if any of these proposals will be enacted. We believe that the uncertainty created by healthcare reform in the United States has complicated our customers’ decision-making process and impacted our Oncology Systems business, and we expect that this uncertainty will persist until there is greater clarity on how the Affordable Health Care for America Act and state proposals will affect healthcare providers. We are unable to predict what effect ongoing uncertainty surrounding these matters will have on our customer’s purchasing decisions. However, an expansion in government’s role in the U.S. healthcare industry may adversely affect our business, possibly materially.

CHANGES TO RADIATION ONCOLOGY REIMBURSEMENTS MAY AFFECT DEMAND FOR OUR PRODUCTS

Sales of our healthcare products indirectly depend on whether adequate reimbursement is available to our customers from a variety of sources, such as government healthcare insurance programs, including the Medicare and Medicaid programs; private insurance plans; health maintenance organizations; and preferred provider organizations. In general, third-party payors in the United States are increasingly cost-conscious, and we cannot be sure that they will reimburse our customers at levels sufficient to enable us to achieve or maintain sales and price levels for our products in this market. Without adequate support from third-party payors, the market for our products may be limited. There is no uniform policy on reimbursement among third-party payors, nor can we be sure that procedures using our products will qualify for appropriate levels of reimbursement from third-party payors. Once Medicare has made a decision to provide reimbursement for a given treatment, these reimbursement rates are generally reviewed and adjusted by Medicare annually. Private third-party payors, although independent from Medicare, sometimes use portions of Medicare reimbursement policies and payment amounts in making their own reimbursement decisions. As a result, decisions by CMS to reimburse for a treatment, or changes to Medicare’s reimbursement policies or reductions in payment amounts with respect to a treatment sometimes extend to third-party payor reimbursement policies and amounts for that treatment. We have seen our customers’ decision-making process complicated by the uncertainty surrounding Medicare reimbursement rates for radiotherapy and radiosurgery in the United States. From time to time, CMS and third party payors may review and modify the factors upon which they rely to determine appropriate levels of reimbursement for cancer treatments. For example, CMS and third-party payors have begun to focus on the comparative effectiveness of radiation therapy versus other methods of cancer treatment, including surgery, and could modify reimbursement rates based on the results of comparative effectiveness studies. If comparative effectiveness studies are not available, or if available studies show that other cancer treatments are more effective than radiotherapy or radiosurgery, reimbursement rates for radiotherapy or radiosurgery could be reduced. Any significant cuts in reimbursement rates for radiotherapy, radiosurgery, proton therapy or brachytherapy, or concerns or proposals regarding further cuts, could further increase uncertainty, influence our customers’ decisions, reduce demand for our products, cause customers to cancel orders and have a material adverse effect on our revenues and stock price.

Foreign governments also have their own healthcare reimbursement systems and we cannot be sure that adequate reimbursement will be made available with respect to our products under any foreign reimbursement system.

OUR RESULTS MAY BE IMPACTED BY CHANGES IN FOREIGN CURRENCY EXCHANGE RATES

Because our business is global and payments are generally made in local currency, fluctuations in foreign currency exchange rates can impact our results by affecting product demand or our expenses and/or the profitability in U.S. dollars of products and services that we provide in foreign markets.

While we use hedging strategies to help offset the effect of fluctuations in foreign currency exchange rates, the protection these strategies provide is affected by the timing of transactions, and the effectiveness of those strategies, the number of transactions that are hedged, forecast volatility and the extent to which exchange rates change. If our hedging strategies do not offset these fluctuations, our revenues and other operating results may be harmed. In addition, movement in foreign currency exchange rates could impact our financial results positively or negatively in one period and not another, making it more difficult to compare our financial results from period to period. Furthermore, on July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act contains provisions which may impact our existing hedging strategies, but we cannot predict those effects at this time.

In addition, long-term movements in foreign currency exchange rates can also affect the competitiveness of our products in the local currencies of our international customers. Even though our international sales are mostly in local currencies, our cost structure is weighted towards the U.S. dollar. The volatility of the U.S. dollar that we have experienced over the last several years has affected the competitiveness of our pricing against our foreign competitors, some of which may have cost structures based in other currencies, either helping or hindering our international order and revenue growth, thereby affecting our overall financial performance and results. Changes in monetary or other policies here and abroad, including as a result of economic instability or concerns about the downgrade and levels of sovereign debt, or in reaction thereto, would also likely affect foreign currency exchange rates. For example, the Euro has been impacted by the sovereign debt crisis in Greece and other European countries. In the event that one or more European countries were to replace the Euro with another currency, our sales into these countries, or into Europe generally, would likely be adversely affected until stable exchange rates are established.

WE ARE SUBJECT TO FEDERAL, STATE AND FOREIGN LAWS GOVERNING OUR BUSINESS PRACTICES WHICH, IF VIOLATED, COULD RESULT IN SUBSTANTIAL PENALTIES. ADDITIONALLY, CHALLENGES TO OR INVESTIGATION INTO OUR PRACTICES COULD CAUSE ADVERSE PUBLICITY AND BE COSTLY TO RESPOND TO AND THUS COULD HARM OUR BUSINESS

Laws and ethical rules governing interactions with healthcare providers. The Medicare and Medicaid “anti-kickback” laws, and similar state laws, prohibit payments or other remuneration that is intended to induce hospitals, physicians or others either to refer patients or to purchase, lease or order, or arrange for or recommend the purchase, lease or order of healthcare products or services for which payment may be made under federal and state healthcare programs, such as Medicare and Medicaid. These laws affect our sales, marketing and other promotional activities by limiting the kinds of financial arrangements we may have with hospitals, physicians or other potential purchasers of our products. They particularly impact how we structure our sales offerings, including discount practices, customer support, education and training programs, physician consulting, research grants and other service arrangements. These laws are broadly written, and it is often difficult to determine precisely how these laws will be applied to specific circumstances.

Federal and state “false claims” laws generally prohibit knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government payors that are false or fraudulent, or for items or services that were not provided as claimed. Although we do not submit claims directly to payors, manufacturers can be, and have been, held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by providing inaccurate billing or coding information to customers, or through certain other activities, including promoting products for uses not approved or cleared by the FDA, which is called off-label promotion. Violating “anti-kickback” and “false claims” laws can result in civil and criminal penalties, which can be substantial, and potential mandatory or discretionary exclusion from healthcare programs for noncompliance. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity, and be costly to defend, and thus could harm our business and results of operations. Additionally, several recently enacted state and federal laws, including the laws in Massachusetts and Vermont, and the federal Physician Payment Sunshine Act, now require, among other things, extensive tracking and maintenance of databases regarding the disclosure of relationships and payments to physicians, healthcare providers and hospitals. These laws require us to implement the necessary and costly infrastructure to track and report certain payments to healthcare providers. Failure to comply with these new tracking and reporting laws could subject us to significant civil monetary penalties.

We are subject to similar laws in foreign countries where we conduct business. For example, within the EU, the control of unlawful marketing activities is a matter of national law in each of the member states. The member states of the EU closely monitor perceived unlawful marketing activity by companies. We could face civil, criminal and administrative sanctions if any member state determines that we have breached our obligations under its national laws. Industry associations also closely monitor the activities of member companies. If these organizations or authorities name us as having breached our obligations under their regulations, rules or standards, our reputation would suffer and our business and financial condition could be adversely affected.

Anti-corruption laws and regulations. We are also subject to the U.S. Foreign Corrupt Practices Act and anti-corruption laws, and similar laws in foreign countries, such as the U.K. Bribery Act of 2010, which became effective on July 1, 2011. In general, there is a worldwide trend to strengthen anticorruption laws and their enforcement. Any violation of these laws by us or our agents or distributors could create a substantial liability for us, subject our officers and directors to personal liability and also cause a loss of reputation in the market. Transparency International’s 2010 Corruption Perceptions Index measured the degree to which public sector corruption is perceived to exist in 178 countries around the world, and found that nearly three quarters of the countries in the index, including many that we consider to be high growth areas for our products, such as China, India, Russia and Brazil, scored below five, on a scale from 10 (very clean) to 0 (highly corrupt). We currently

operate in many countries where the public sector is perceived as being more or highly corrupt. Our strategic business plans include expanding our business in regions and countries that are rated as higher risk for corruption activity by Transparency International. Becoming familiar with and implementing the infrastructure necessary to comply with laws, rules and regulations applicable to new business activities and mitigate and protect against corruption risks could be quite costly. In addition, failure by us or our agents or distributors to comply with these laws, rules and regulations could delay our expansion into high-growth markets and could adversely affect our business. This notwithstanding, we will inevitably do more business, directly and potentially indirectly in countries, where the public sector is perceived to be more or highly corrupt and be engaging in business in more countries perceived to be more or highly corrupt. Increased business in higher risk countries could subject us and our officers and directors to increased scrutiny and increased liability. In addition, from time to time, we may conduct internal investigations or face audits or investigations by one or more domestic or foreign government agencies, which could be costly and time-consuming, and could divert our management and key personnel from our business operations. An adverse outcome under any such investigation or audit could subject us to fines or criminal or other penalties, which could adversely affect our business and financial results.

PRODUCT DEFECTS OR MISUSE MAY RESULT IN MATERIAL PRODUCT LIABILITY OR PROFESSIONAL ERRORS AND OMISSIONS CLAIMS, LITIGATION, INVESTIGATION BY REGULATORY AUTHORITIES OR PRODUCT RECALLS THAT COULD HARM FUTURE REVENUES AND REQUIRE US TO PAY MATERIAL UNINSURED CLAIMS

Our business exposes us to potential product liability claims that are inherent in the manufacture, sale, installation, servicing and support of medical devices and other devices that deliver radiation. Because our products are involved in the intentional delivery of radiation to the human body, other situations where people may come in contact with radiation (for example, when our SIP products are being used to scan cargo), the collection and storage of patient treatment data for medical analysis and treatment delivery, the planning of radiation treatment and diagnostic imaging of the human body, and the diagnosing of medical problems, the possibility for significant injury and/or death exists. Our medical products operate within our customers’ facilities and network systems, and under quality assurance procedures established by the facility that ultimately result in the delivery of radiation to patients. Human and other errors or accidents may arise from the operation of our products in complex environments, particularly with products from other vendors, where interoperability or data sharing protocol may not be optimized even though the equipment or system operates according to specifications. As a result, we may face substantial liability to patients, our customers and others for damages resulting from the faulty, or allegedly faulty, design, manufacture, installation, servicing, support, testing or interoperability of our products with other products, or their misuse or failure, as well as liability related to the loss or misuse of private patient data. We may also be subject to claims for property damages or economic loss related to or resulting from any errors or defects in our products, or the installation, servicing and support of our products. Any accident or mistreatment could subject us to legal costs, litigation, adverse publicity and damage to our reputation, whether or not our products or services were a factor.

Product liability actions are subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations. For these and other reasons, we may choose to settle product liability claims against us, regardless of their actual merit. If a product liability action were finally determined against us, it could result in significant damages, including the possibility of punitive damages. If any final amounts owed were in excess of the amounts accrued, our consolidated financial position, results of operations or cash flows could be materially adversely affected. Adverse publicity regarding any accidents or mistreatments, even ones that do not involve our products, could cause patients to be less receptive to radiotherapy treatments, causing them to question the efficacy of radiation therapy and seek other methods of treatment and adversely impacting our business. Adverse publicity could also result in additional regulation of radiation therapy, medical devices or the healthcare industry in general. Increased regulatory activities could adversely affect our ability to promote, manufacture and sell our products, and therefore negatively impact our business and results of operations.

In addition, if a product we design or manufacture were defective (whether due to design, labeling or manufacturing defects, improper use of the product or other reasons), we may be required to correct or recall the product and notify regulatory authorities. The adverse publicity resulting from a correction or recall could damage our reputation and cause customers to review and potentially terminate their relationships with us. A product correction or recall could consume management time and have an adverse financial impact on our business, including incurring substantial costs, losing revenues and accruing losses under accounting principles generally accepted in the United States (“GAAP”).

We maintain limited product liability insurance coverage and currently self-insure professional liability/errors and omissions liability. Our product liability insurance policies are expensive and have high deductible amounts and self-insured retentions. Our insurance coverage may also prove to be inadequate, and future policies may not be available on acceptable terms or in

sufficient amounts, if at all. If a material claim is successfully brought against us relating to a self-insured liability or a liability that is in excess of our insurance coverage, or for which insurance coverage is denied or limited, we could have to pay substantial damages, which could have a material adverse effect on our financial position and results of operation.

WE COMPETE IN HIGHLY COMPETITIVE MARKETS, AND WE MAY LOSE MARKET SHARE TO COMPANIES WITH GREATER RESOURCES OR THE ABILITY TO DEVELOP MORE EFFECTIVE TECHNOLOGIES, OR WE COULD BE FORCED TO REDUCE OUR PRICES

Rapidly evolving technology, intense competition and pricing pressure characterize the markets for radiation therapy equipment and software. Some of our competitors have greater financial, marketing and other resources than we have. Also, we believe that new competitors will enter our markets, as we have encountered new competitors as we have entered new markets such as radiosurgery, volumetric modulated arc therapy and proton therapy. To compete successfully, we must provide technically superior, clinically proven products that deliver more precise, cost-effective, high quality clinical outcomes, in a complete package of products and services, and to do so ahead of our competitors. As our Oncology Systems products are generally sold on a basis of total value to the customer, our business may suffer when purchase decisions are based solely upon price, which can happen if hospitals and clinics give purchasing decision authority to group purchasing organizations. In addition, additional competitors may delay customer purchasing decisions as customers evaluate the products of these competitors along with ours, potentially extending our sales cycle and adversely affecting our net orders.

In x-ray imaging components and subsystems, we also often compete with companies that have greater financial, marketing and other resources than we have. Some of the major diagnostic imaging systems companies, which are the primary OEM customers for our x-ray components, also manufacture x-ray components, including X-ray tubes, for use in their own imaging systems products. We must compete with these in-house manufacturing operations for business from their affiliated companies. In addition, we compete against other stand-alone, independent X-ray tube manufacturers who compete with us for both the OEM business of major diagnostic imaging equipment manufacturers and the independent servicing business for X-ray tubes. The market for flat panel detectors is also very competitive. As a result, we must have a competitive advantage in one or more significant areas, which may include lower product cost, better product quality and/or superior technology and/or performance.

In our SIP business, we compete with other OEM suppliers, primarily outside of the United States. The market for our SIP products used for nondestructive testing in industrial applications is small and highly fragmented.

The market for proton therapy products is still developing and is characterized by rapidly evolving technology, high competition and pricing pressure. Our ability to compete successfully depends, in part, our ability to lower our product costs, develop and provide technically superior, clinically proven products that deliver more precise, cost-effective, high quality clinical outcomes, including integration of technologies such as OBI for IGRT and motion management technologies such as respiratory gating and Calypso.

In each of our business segments, existing competitors’ actions and new entrants may adversely affect our ability to compete. These competitors could develop technologies and products that are more effective than those we currently use or produce or that could render our products obsolete or noncompetitive. In addition, the timing of our competitors’ introduction of products into the market could affect the market acceptance and market share of our products. Some competitors offer specialized products that provide, or may be perceived by customers to provide, a marketing advantage over our mainstream cancer treatment products. Also, some of our competitors may not be subject to the same standards, regulatory and/or other legal requirements that we are, and therefore, they could have a competitive advantage in developing, manufacturing and marketing products and services. Any inability to develop, gain regulatory approval for and supply commercial quantities of competitive products to the market as quickly and effectively as our competitors could limit market acceptance of our products and reduce our sales. In addition, some of our smaller competitors could be acquired by larger companies that have greater financial strength, which could enable them to compete more aggressively. Our competitors could also acquire some of our suppliers or distributors, which could disrupt these supply or distribution arrangements and result in less predictable and reduced revenues in our businesses. Any of these competitive factors could negatively affect our pricing, sales, revenues, market share and gross margins and our ability to maintain or increase our operating margins.

OPEN ARCHITECTURE IS BECOMING INCREASINGLY IMPORTANT, AND SALES OF OUR PRODUCTS COULD FALL IF WE FAIL TO ACHIEVE THIS

As radiation oncology treatment becomes more complex, our customers are increasingly focusing on ease-of-use and interconnectivity. Our equipment and software are highly sophisticated and require a high level of training and education to

use them competently and safely, requirements made even more important because they work together within integrated environments. We have directed substantial product development efforts into (i) increasing the interconnectivity of our products for more seamless operation within a system, (ii) enhancing the ease of use of our software products and (iii) reducing setup and treatment times and increasing patient throughput. We have emphasized maintaining an “open systems” approach that allows customers to “mix and match” our various individual products, incorporate products from other manufacturers, share information with other systems or products and use the equipment for offering various methods of radiation therapy treatment. We have done this based on our belief that such interconnectivity will increase the acceptance and adoption of IMRT, IGRT and volumetric modulated arc therapy and will stimulate demand for our products. There are competitive “closed-ended” dedicated-use systems, however, that place simplicity of use ahead of flexibility. If we have misjudged the importance to our customers of maintaining an “open systems” approach, or if we are unsuccessful in our efforts to increase interconnectivity, enhance ease-of-use and reduce setup and treatment times, our revenues could suffer.

Obtaining and maintaining interoperability and compatibility can be costly and time-consuming. While we try to use standard published protocols for communication with widely used radiation oncology products manufactured by other companies, if this cannot be done, we may need to develop individual interfaces so that our products communicate correctly. When other companies modify the design or functionality of their products, this may affect their compatibility with our products. When we implement design improvements to our products, customers may be reluctant to adopt our new technology due to interoperability issues. For example, a clinic may be unwilling to implement one of our new technologies because its third-party software does not yet communicate correctly with our new product. Our ability to obtain compatibility with products of other companies may depend on our ability to obtain adequate information from them regarding their products. In many cases, these third parties are our competitors and may schedule their product changes and delay their release of relevant information to us to place us at a competitive disadvantage. When we modify our products to make them interoperable or compatible with third-party products, we may be required to obtain additional regulatory clearances. This process is costly and could delay our ability to release our products for commercial use. It is also possible that, despite our best efforts, we may not be able to make our products interoperable or compatible with widely used third-party products or may only be able to do so at a prohibitive expense, making our products less attractive or more costly to our customers.

PROTECTING OUR INTELLECTUAL PROPERTY CAN BE COSTLY AND WE MAY NOT BE ABLE TO MAINTAIN LICENSED RIGHTS, AND IN EITHER CASE OUR COMPETITIVE POSITION WOULD BE HARMED IF WE ARE NOT ABLE TO DO SO

We file applications as appropriate for patents covering new products and manufacturing processes. We cannot be sure, however, that our current patents, the claims allowed under our current patents, or patents for technologies licensed to us will be sufficiently broad to protect our technology position against competitors. Issued patents owned by, or licensed to, us may be challenged, invalidated or circumvented, or the rights granted under the patents may not provide us with competitive advantages. We also cannot be sure that patents will be issued from any of our pending or future patent applications. Asserting our patent rights against others in litigation or other legal proceedings is costly and diverts managerial resources. An unfavorable outcome in any such litigation or proceeding could harm us. In addition, we may not be able to detect patent infringement by others or may lose our competitive position in the market before we are able to do so.

We also rely on a combination of copyright, trade secret and other laws, and contractual restrictions on disclosure, copying and transferring title (including confidentiality agreements with vendors, strategic partners, co-developers, employees, consultants and other third parties), to protect our proprietary rights. These protections may prove inadequate, since agreements may still be breached and we may not have adequate remedies for a breach, and our trade secrets may otherwise become known to or be independently developed by others. We have trademarks, both registered and unregistered, that are maintained and enforced to provide customer recognition for our products in the marketplace, but unauthorized third parties may still use them. We also have agreements with third parties that license to us certain patented or proprietary technologies. In some cases products with substantial revenues may depend on these license rights. If we were to lose the rights to license these technologies, or our costs to license these technologies were to materially increase, our business would suffer.

THIRD PARTIES MAY CLAIM WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY, AND WE COULD SUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE PREVENTED FROM SELLING OUR PRODUCTS

The industries in which we compete are characterized by a substantial amount of litigation over patent and other intellectual property rights. Our competitors, like companies in many high technology businesses, continually review other companies’ activities for possible conflicts with their own intellectual property rights. In addition, non-practicing entities may review our

activities for conflicts with their patent rights. Determining whether a product infringes a third party’s intellectual property rights involves complex legal and factual issues, and the outcome of this type of litigation is often uncertain. Third parties may claim that we are infringing their intellectual property rights, and we may be found to infringe those intellectual property rights. We may not be aware of intellectual property rights of others that relate to our products, services or technologies. From time to time, we have received notices from third parties asserting infringement and we have been subject to lawsuits alleging infringement of third-party patent or other intellectual property rights. For example, we are currently involved in a patent infringement lawsuit relating to our Real-time Position Management™ technology. Any dispute regarding patents or other intellectual property could be costly and time-consuming, and could divert our management and key personnel from our business operations, and we may not prevail in a dispute. We do not maintain insurance for intellectual property infringement, so costs of defense, whether or not we are successful in defending an infringement claim, will be borne by us and could be significant. If we are unsuccessful in defending or appealing an infringement claim, we may be subject to significant damages. If actual damages significantly exceed our estimates, our consolidated financial position, results of operations or cash flows could be materially adversely affected. We may also be subject to injunctions against development and sale of our products, which could be material. If a third party rights holder is willing to license rights, we may be required to enter into costly royalty or license agreements.

THE LOSS OF A SUPPLIER OR ANY INABILITY TO OBTAIN SUPPLIES OF IMPORTANT COMPONENTS COULD RESTRICT OUR ABILITY TO MANUFACTURE PRODUCTS, CAUSE DELAYS IN OUR ABILITY TO DELIVER PRODUCTS, OR SIGNIFICANTLY INCREASE OUR COSTS

We obtain some of the components included in our products from a limited group of suppliers or from a single-source supplier, such as the radioactive sources for high dose afterloaders, klystrons for linear accelerators; transistor arrays and cesium iodide coatings for flat panel detectors, and specialized integrated circuits, X-ray tube targets, housings, glassframes and various other X-ray tube components; and radiofrequency components, magnets and gantry hardware for proton therapy systems. If we lose any of these suppliers or if their operations were substantially interrupted, we would be required to obtain and qualify one or more replacement suppliers, which may then also require us to redesign or modify our products to incorporate new parts and/or further require us to obtain clearance, qualification or certification of such product by the FDA or other applicable regulatory approvals in other countries. Events like these could significantly increase costs for the affected product and likely cause material delays in delivery of that and other related products. Although we have insurance to protect against business interruption loss, this insurance coverage may not be adequate or continue to remain available on acceptable terms, if at all. Additionally, some of our single-source suppliers supply components for certain of our rapidly growing product lines. Manufacturing capacity limitations of any of our suppliers or other inability of these suppliers to meet increasing demand could adversely affect us, resulting in curtailed growth opportunities for any of our product lines. Shortage of, and greater demand for, components and subassemblies could also increase manufacturing costs by increasing prices. Disruptions or loss of any of our limited- or sole-source components or subassemblies or the capacity limitations of the suppliers for these components or subassemblies, including the ones referenced above, could adversely affect our business and financial results and could damage our customer relationships.

A SHORTAGE OF RAW MATERIALS COULD RESTRICT OUR ABILITY TO MANUFACTURE PRODUCTS, CAUSE DELAYS, OR SIGNIFICANTLY INCREASE OUR COST OF GOODS

We rely upon the supplies of certain raw materials such as tungsten, lead and copper for Oncology Systems and SIP; copper, lead, tungsten, rhenium, molybdenum zirconium, and various high grades of steel alloy for X-ray tubes, and high-grade steel, high-grade copper and iron for VPT. Demand for these raw materials both within the United States and from foreign countries, such as China, has increased over the last few years, resulting in limited supplies and higher prices. Worldwide demand, availability and pricing of these raw materials have been volatile, and we expect that availability and pricing will continue to fluctuate in the future. If supplies are restricted and prices increase, this could constrain our manufacturing of affected products, reduce our profit margins or otherwise adversely affect our business.

CONSOLIDATION AMONG OUR ONCOLOGY SYSTEMS CUSTOMERS COULD ADVERSELY AFFECT OUR SALES OF ONCOLOGY PRODUCTS

We have seen and may continue to see some consolidation among our customers in our Oncology Systems business, as hospitals and clinics combine through mergers and acquisitions, and as they join group purchasing organizations or affiliated enterprises. As customers consolidate, the volume of product sales to these customers might decrease. Alternatively, order size may increase as what were previously more than one customer combine orders as one entity. As a result, the purchasing cycle for our Oncology Systems products could lengthen, as orders increase in size and require more customer approvals. Both increased order size and extended purchasing cycles could cause our net orders to be more volatile and less predictable.

In addition, group purchasing organizations often focus on pricing as the determinant in making purchase decisions. A reduction in net orders could affect the level of future revenues, which would adversely affect our operating results, financial condition, and the price of VMS common stock.

WE SELL OUR X-RAY PRODUCTS TO A LIMITED NUMBER OF OEM CUSTOMERS, MANY OF WHICH ARE ALSO OUR COMPETITORS, AND A REDUCTION IN BUSINESS OR INABILITY TO PROPERLY FORECAST SALES BY ONE OR MORE OF THESE CUSTOMERS COULD REDUCE OUR SALES

We sell our X-ray tube products to a limited number of OEM customers, many of which are also our competitors with in-house X-ray tube manufacturing operations. If these customers manufacture a greater percentage of their components in-house or otherwise lower external sourcing costs, we could experience the loss of, or reduction in purchasing volume by, one or more of these customers. Such a loss or reduction could have a material adverse effect on our X-ray Products business. In addition, economic concerns, such as concerns over a sluggish economic recovery, levels of sovereign debt or restrictions in government spending, as well as the effects of natural disasters (such as power outages and facility closures), have made it difficult for our OEM customers to accurately forecast and plan future business activities, and our x-ray business has in the past been impacted by inventory reduction efforts and a slowdown in sales at some of these customers. For example, we believe the weak X-ray Products revenue growth we experienced in the first quarter of fiscal year 2012 was related to inventory adjustments by several customers in Japan who appear to have overstocked tubes and panels in order to maintain normal production schedules despite the blackouts that followed the March 2011 earthquake and tsunami. Similar inventory adjustments could occur in the future. Our agreements for x-ray components may contain purchasing estimates that are based on our customers’ historical purchasing patterns, and actual purchasing volumes under the agreements may vary significantly from our estimates.

ORDERS FOR OUR SECURITY AND INSPECTION PRODUCTS COULD BE UNPREDICTABLE

Our SIP business designs, manufactures, sells and services Linatron x-ray accelerators, imaging processing software and image detection products for security and inspection, such as cargo screening at ports and borders and nondestructive examination for a variety of applications. We generally sell SIP products to OEMs who incorporate our products into their inspection systems, which are then sold to customs and other government agencies, as well as to commercial organizations in the casting, power, aerospace, chemical, petro-chemical and automotive industries. We believe growth in the SIP business will be driven by security cargo screening and border protection needs, as well as by the needs of customs agencies to verify shipments for assessing duties and taxes. However, use of linear accelerator and imaging technology in security cargo screening and border protection is in its early stages. Orders for our SIP products have been and may continue to be unpredictable as governmental agencies may place large orders with us or our OEM customers in a short time period, and then may not place any orders for a long time period thereafter. Because it is difficult to predict our OEM customer delivery and acceptance schedules, the actual timing of sales and revenue recognition will vary significantly.

In addition, our SIP business is heavily influenced by U.S. and foreign governmental policies on national and homeland security, border protection and customs revenue activities, which depend upon government budgets and appropriations that are subject to economic conditions, as well as political changes. We have seen customers freeze or dramatically reduce purchases and capital project expenditures, delay projects, or act cautiously as governments around the world wrestle with spending priorities. As economic growth remains sluggish in various jurisdictions and appears to be deteriorating in others, and as concerns about levels of government employment and government debt continue, we expect that these effects will also continue. Furthermore, bid awards in this business may be subject to challenge by third parties, as we have previously encountered with a large government project, which can make the certainty and timing of some SIP orders unpredictable. As a result, this business is subject to unpredictability in the timing of orders, sales and revenue that could cause volatility in our revenues and earnings, and therefore the price of VMS common stock.

IF WE ARE UNABLE TO PROVIDE THE SIGNIFICANT EDUCATION AND TRAINING REQUIRED FOR THE HEALTHCARE MARKET TO ACCEPT OUR PRODUCTS, OUR BUSINESS WILL SUFFER

In order to achieve market acceptance for our radiation therapy products, we often need to educate physicians about the use of a new treatment procedure such as IMRT, IGRT, volumetric modulated arc therapy, stereotactic radiotherapy, SRS, SBRT or proton therapy, overcome physician objections to some of the effects of the product or its related treatment regimen, convince healthcare payors that the benefits of the product and its related treatment process outweigh its costs and help train qualified physicists in the skilled use of our products. For example, the complexity and dynamic nature of IMRT and IGRT requires significant education of hospital personnel and physicians regarding the benefits of and practices associated with IMRT and IGRT. Further, the complexity and high cost of proton therapy requires similar significant education, as well as

education regarding construction and facility requirements. We have expended and will continue to expend significant resources on marketing and educational efforts to create awareness of IMRT, IGRT, volumetric modulated arc therapy, stereotactic radiotherapy, SRS, SBRT and proton therapy generally; to encourage the acceptance and adoption of our products for these technologies; and to promote the safe use of our products in compliance with their operating procedures. Future products may not gain significant market acceptance among physicians, patients and healthcare payors, even if we spend significant time and expense on their education.

OUR BUSINESS MAY SUFFER IF WE ARE NOT ABLE TO HIRE AND RETAIN QUALIFIED PERSONNEL

Our future success depends, to a significant extent, on our ability to retain, attract, expand, integrate and train our management team and other key personnel, such as qualified engineering, service, sales, marketing and other qualified staff. We compete for key personnel with other medical equipment and software manufacturers and technology companies, as well as universities and research institutions. Because this competition is intense, compensation-related costs could increase significantly if the supply of qualified personnel decreases or demand increases. If we are unable to hire and train qualified personnel, we may not be able to maintain or expand our business, and our business would suffer. Additionally, if we are unable to retain any of our key personnel, we may not be able to replace them readily or on terms that are reasonable, if at all, which also could have a materially adverse effect on our business.

IF WE ARE NOT ABLE TO MATCH OUR MANUFACTURING CAPACITY WITH DEMAND FOR OUR PRODUCTS, OUR FINANCIAL RESULTS MAY SUFFER

Our products have a long production cycle and we need to anticipate demand for our products in order to ensure adequate manufacturing or testing capacity. If we are unable to anticipate demand and our manufacturing or testing capacity does not keep pace with product demand, we will not be able to fulfill orders timely, which may negatively impact our financial results and overall business. Conversely, if demand for our products decreases, the fixed costs associated with excess manufacturing capacity may harm our financial results.

IF WE FAIL TO SUCCESSFULLY ACQUIRE OR INTEGRATE NEW BUSINESSES, PRODUCTS AND TECHNOLOGY, WE MAY NOT REALIZE EXPECTED BENEFITS OR MAY HARM OUR BUSINESS

We need to grow our businesses in response to changing technologies, customer demands and competitive pressures. In some circumstances, we may decide to grow our business through the acquisition of complementary businesses, products or technologies rather than through internal development. For example, in April 2012 we acquired all of the outstanding equity of InfiMed, Inc., a supplier of hardware and software for processing diagnostic x-ray images and in October 2011 acquired Calypso. Identifying suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to identify suitable candidates or successfully complete identified acquisitions. In addition, completing an acquisition can divert our management and key personnel from our business operations, which could harm our business and affect our financial results. Even if we complete an acquisition, we may not be able to successfully integrate newly acquired organizations, products, technologies or employees into our operations, or may not fully realize some of the expected synergies.

Integrating an acquisition can also be expensive and time-consuming, and may strain our resources. It may cost us more to commercialize new products than we originally anticipated, as we are experiencing with our proton therapy systems, which could impact our results of operations. In many instances, integrating a new business will also involve implementing or improving internal controls appropriate for a public company at a business that lacks them. In addition, we may be unable to retain the employees of acquired companies, or the acquired company’s customers, suppliers, distributors or other partners for a variety of reasons, including the fact that these entities may be our competitors or may have close relationships with our competitors.

Further, we may find that we need to restructure or divest acquired businesses, or assets of those businesses. Even if we do so, an acquisition may not produce the full efficiencies, growth or benefits we expected. If we decide to sell assets or a business, as we did in fiscal year 2008 with the scientific research instruments business that we acquired as part of our acquisition of ACCEL, it may be difficult to identify buyers or alternative exit strategies on acceptable terms, in a timely manner, or at all, which could delay the accomplishment of our strategic objectives. Additionally, we may be required to dispose of a business at a lower price or on less advantageous terms, or to recognize greater losses, than we had anticipated.

We account for our acquisitions under the purchase method of accounting. Under this method, we allocate the total purchase price to the acquired businesses’ tangible assets and liabilities, identifiable intangible assets and in-process research and development costs based on their fair values as of the date of the acquisition, and record the excess of the purchase price over

those fair values as goodwill. If we fail to achieve the anticipated growth from an acquisition, or if we decide to sell assets or a business, we may be required to recognize an impairment loss on the write down of our assets and goodwill, which could adversely affect our financial results. In addition, acquisitions can result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities or expenses, or other charges, any of which could harm our business and affect our financial results.

WE MAY FACE ADDITIONAL RISKS FROM THE ACQUISITION OR DEVELOPMENT OF NEW LINES OF BUSINESS

From time to time, we may acquire or develop new lines of business, such as proton therapy. There are substantial risks and uncertainties associated with this, particularly in instances where the markets are not fully developed. Risks include developing knowledge of and experience in the new business, recruiting market professionals, increasing research and development expenditures, and developing and capitalizing on new relationships with experienced market participants. This may mean significant investment and involvement of our senior management to acquire or develop, then integrate, the business into our operations. Timelines for integration of new businesses may not be achieved and price and profitability targets may not prove feasible, as new products can carry lower gross margins than existing products. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact whether implementation of a new business will be successful. Failure to manage these risks in the development and implementation of new businesses successfully could materially and adversely affect our business, results of operations and financial condition.

WE WORK WITH DISTRIBUTORS FOR SALES IN SOME TERRITORIES, AND LOSING THEM COULD HARM OUR REVENUES IN THAT TERRITORY

We have strategic relationships with a number of key distributors for sales and service of our products, principally in Europe and Asia. If these strategic relationships end and are not replaced, our revenues from product sales in these territories and/or ability to service our products in the territories serviced by these distributors could be adversely affected.

FLUCTUATIONS IN OUR OPERATING RESULTS, INCLUDING QUARTERLY NET ORDERS, REVENUES, AND MARGINS, MAY CAUSE OUR STOCK PRICE TO BE VOLATILE, WHICH COULD CAUSE LOSSES FOR OUR STOCKHOLDERS

We have experienced and expect in the future to experience fluctuations in our operating results, including net orders, revenues and margins, from period to period. Drivers of orders include timing of announcement of and introduction of new products or product enhancements by us and our competitors, as well as changes or anticipated changes in third party reimbursement amounts or policies applicable to treatments using our products. The availability of economic stimulus packages or other government funding, or reductions thereof, may also affect timing of customer purchases. Many of our products require significant capital expenditures by our customers. Accordingly, individual product orders can be quite large in dollar amounts, which can extend the customer purchasing cycle. We have experienced this with our IGRT products, and it is especially true with our proton therapy products because of the high cost of the proton therapy equipment and the complexity of project financing. In addition, the budgeting cycles of hospitals and clinics for capital equipment purchases are frequently fixed well in advance. As a result of the sluggish recovery from the 2008 worldwide economic downturn and contraction in credit markets, as well as continued uncertainty regarding global economic conditions, the purchasing cycle has extended and may extend even further as potential customers more closely scrutinize and prioritize their capital spending budgets, and analyze appropriate financing alternatives. In addition, some of our more sophisticated equipment, such as IGRT and proton therapy products, requires greater site preparation and longer construction cycles, which can delay customer decision cycles even further. The timing of when individual orders are placed, installation is accomplished and the revenues recognized affect our quarterly results.

Once orders are received, factors that may affect whether these orders become revenues and the timing of revenue include:

•

delay in shipment due, for example, to unanticipated construction delays at customer locations where our products are to be installed, cancellations or rescheduling by customers, extreme weather conditions, natural disasters or port strikes;

•

delay in the installation and/or acceptance of a product;

•

for proton therapy systems, failure to satisfy contingencies associated with an order;

•

the method of accounting used to recognize revenue;

•

a change in a customer’s financial condition or ability to obtain financing; or

•

timing of appropriate regulatory approvals or authorizations.

Our quarterly operating results, including our margins, may also be affected by a number of other factors, including:

•

changes in our or our competitors’ pricing or discount levels;

•

changes in foreign currency exchange rates;

•

changes in the relative portion of our revenues represented by our various products, including the relative mix between higher margin and lower margin products;

•

changes in the relative portion of our revenues represented by our international region as a whole, by regions within the overall region as well as by individual countries (notably those in emerging markets);

•

fluctuation in our effective tax rate, which may or may not be known to us in advance;

•

changes to our organizational structure, which may result in restructuring or other charges;

•

disruptions in the supply or changes in the costs of raw materials, labor, product components or transportation services;

•

disruptions in our operations, including our ability to manufacture products, caused by events such as earthquakes, fires, floods, terrorist attacks or the outbreak of epidemic diseases;

•

the impact of changing levels of sales on sole purchasers of certain of our x-ray products;

•

the unfavorable outcome of any litigation or administrative proceeding or inquiry, as well as ongoing costs associated with legal proceedings; and

•

accounting changes and adoption of new accounting pronouncements.

Because many of our operating expenses are based on anticipated capacity levels and a high percentage of these expenses are fixed for the short term, a small variation in the timing of revenue recognition can cause significant variations in operating results from quarter to quarter. Our overall gross margin may also be impacted by the gross margin of our proton therapy products, which are presently below the gross margins for our traditional radiotherapy products and particularly prior to completion because they are being accounted for in accordance with the zero profit, percentage-of-completion method. If our gross margins fall below the expectation of securities analysts and investors, the trading price of VMS common stock would almost certainly decline.

We report on a quarterly and annual basis our net orders and backlog. It is important to understand that, unlike revenues, net orders and backlog are not governed by GAAP, and are not within the scope of the audit or reviews conducted by our independent registered public accounting firm; therefore, investors should not interpret our net orders or backlog in such a manner. Also, for the reasons set forth above, our net orders and backlog cannot necessarily be relied upon as accurate predictors of future revenues. High levels of order cancellation or delays in customer purchase decisions or delivery dates will reduce the quarterly net orders and backlog and also affect the level of future revenues. Accordingly, we cannot be sure if or when orders will mature into revenues. Our net orders, backlog, revenues and net earnings in one or more future periods may fall below the expectations of securities analysts and investors. In that event, the trading price of VMS common stock would almost certainly decline.

THE FINANCIAL RESULTS OF OUR VARIAN PARTICLE THERAPY BUSINESS MAY FLUCTUATE AND BE UNPREDICTABLE

The development of the business we now call VPT enables us to offer products for delivering image-guided, intensity-modulated proton therapy for the treatment of cancer. Our success in this area will depend upon the wide-spread awareness, acceptance and adoption by the oncology market of proton therapy systems for the treatment of cancer. However, this technology has not been and future developments may not be adopted as quickly as others.

Since proton therapy projects are highly customized and are generally large and more complex, planning for these projects takes more time and uses more resources than in the radiotherapy business conducted in our Oncology Systems segment. Due to its relatively large scale, the construction of a proton therapy facility requires significant capital investment and may involve complex project financing. Consequently, this business is vulnerable to general economic and market conditions. The worldwide economic downturn resulted in a contraction in credit markets. This has made and may continue to make it more difficult for potential customers of this business to find appropriate financing for large proton therapy projects, which could cause them to delay or cancel their projects, or request that we participate in financing arrangements (such as we recently did for the Scripps Proton Therapy Center) or payment concessions in their agreements with us, which could impact our operating results. In addition, due to their size and complexity, the sales and customer decision cycles for proton therapy projects may take several years. As a result, the timing of these projects, and therefore our operating results for this business, may vary significantly from period to period.

We expect that a limited number of customers will account for a substantial portion of VPT’s business for the foreseeable future. Because an order for a proton therapy system can be relatively large, an order in one fiscal period will cause our net orders to vary significantly, making comparisons between fiscal periods more difficult. Further, the award of a proton therapy system order may be subject to challenge by third parties, which can make these orders more unpredictable than other products. If a customer cancels an order for a proton therapy system, such as occurred with the order for a proton therapy system for Skandion Kliniken in Sweden, it would negatively impact our orders in the fiscal period in which the order is cancelled and we would lose the opportunity for the product and services revenues that the order represents.

In addition, many of the components used in proton therapy equipment require a long lead time, which may require an increase in our levels of inventory. This may cause fluctuations in the operating results of VPT that may make it difficult to predict our results and to compare our results from period to period.

Moreover, entrance into the proton therapy business may subject us to increased risk and potential liability. For example, because proton therapy projects are large in scale and require detailed project planning, failure to deliver on our commitments could result in greater than expected liabilities, as we could be required to indemnify business partners and customers for losses suffered or incurred if we are unable to deliver our products in accordance with the terms of customer contracts. Additionally, customers are requesting that the systems vendor, as the primary technology provider, provide guarantees for and suffer penalties in relation to the overall construction project, as well as in some situations participate in or provide project financing for the project. Providing financing for one or more proton therapy centers, such as the Scripps Proton Therapy Center, could adversely affect our financial results, since we cannot provide any assurance that a center will be completed on time or within budget, that the center can or will generate sufficient patient volumes and revenues to support scheduled loan payments or to provide incremental revenue to us, that a loan commitment may be syndicated to third parties or refinanced at maturity, or that the borrower will have the financial means to pay off any financing at maturity. If a borrower does not have the financial means to pay off its debts and if we cannot recover our investment from the sale of any collateral, we may be required to write off the debt investment, which would adversely affect our financial results. If we must establish special purpose entities to finance and manage a proton therapy project, we may be required to consolidate these special purpose entities in our financial statements. Since the cost of each proton therapy center project will generally exceed $100 million, the amount of potential liability and potential for financial loss may be higher than the levels historically assumed by us for our traditional radiation therapy business and may also exceed the project’s value. Insurance covering these contingencies may be unobtainable. If we cannot reasonably mitigate or eliminate these contingencies or risks, our ability to competitively bid upon proton center projects will be negatively impacted or we may be required to assume material amounts of potential liability, all of which may have adverse consequences to us. In addition, we have encountered and may encounter additional challenges in the commercialization of the proton therapy products, which may increase our research and development costs and delay the introduction of our products. This and other unanticipated events could adversely affect our business and make our results of operations unpredictable.

WE HAVE ENTERED INTO A CREDIT FACILITY AGREEMENT THAT RESTRICTS CERTAIN ACTIVITIES, AND FAILURE TO COMPLY WITH THIS AGREEMENT MAY HAVE AN ADVERSE EFFECT ON OUR BUSINESS, LIQUIDITY AND FINANCIAL POSITION

We maintain a revolving credit facility that contains restrictive financial covenants, including financial covenants that require us to comply with specified financial ratios. We may have to curtail some of our operations to comply with these covenants. In addition, our revolving credit facility contains other affirmative and negative covenants that could restrict our operating and financing activities. These provisions limit our ability to, among other things, incur future indebtedness, contingent obligations or liens, guarantee indebtedness, make certain investments and capital expenditures, sell stock or assets and pay

dividends, and consummate certain mergers or acquisitions. Because of the restrictions on our ability to create or assume liens, we may find it difficult to secure additional indebtedness if required. Furthermore, if we fail to comply with the credit facility requirements, we may be in default. Upon an event of default if the credit agreement is not amended or the event of default is not waived, the lender could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If this happens, we may not be able to make those payments or borrow sufficient funds from alternative sources to make those payments. Even if we were to obtain additional financing, that financing may be on unfavorable terms.

CHANGES IN INTERPRETATION OR APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES MAY ADVERSELY AFFECT OUR OPERATING RESULTS

We prepare our financial statements to conform to GAAP. These principles are subject to interpretation by the FASB, American Institute of Certified Public Accountants, the Public Company Accounting Oversight Board, the Securities and Exchange Commission and various other regulatory or accounting bodies. A change in interpretations of, or our application of, these principles can have a significant effect on our reported results and may even affect our reporting of transactions completed before a change is announced. In addition, when we are required to adopt new accounting standards, our methods of accounting for certain items may change, which could cause our results of operations to fluctuate from period to period and make it more difficult to compare our financial results to prior periods.

As our operations evolve over time, we may introduce new products or new technologies that require us to apply different accounting principles, including that regarding revenue recognition, than we have applied in past periods. Additionally, we recognize revenues for our proton therapy systems and proton therapy commissioning contracts and for certain highly customized image detection systems in our SIP business under the percentage-of-completion method, which affects the timing of revenue recognition. We could be required to apply these methods to other businesses in the future. The percentage-of-completion method involves considerable use of estimates in determining revenues, costs and profits and in assigning dollar amounts to relevant accounting periods which must be periodically reviewed and appropriately adjusted. For example, revenues recognized under the percentage-of-completion method are based on contract costs incurred to date compared with total estimated contract costs. In circumstances in which the final outcome of a contract cannot be precisely estimated but a loss on the contract is not expected, we recognize revenues under the percentage-of-completion method based on a zero profit margin until more precise estimates can be made. Recognizing revenues using the percentage-of-completion method based on a zero profit margin, as we are doing with the revenues associated with the Scripps Proton Therapy Center, will lower our gross margins and make it more difficult to compare our financial results from quarter to quarter.

If our estimates prove to be inaccurate or circumstances change over time, we would be required to adjust revenues or even record a contract loss in later periods, and our financial results could suffer. In addition, if a loss is expected on a contract under the percentage-of-completion method, the estimated loss would be charged to cost of sales in the period the loss is identified. The application of different types of accounting principles and related potential changes may make it more difficult to compare our financial results from quarter to quarter, and the trading price of VMS common stock could suffer or become more volatile as a result.

ENVIRONMENTAL LAWS IMPOSE COMPLIANCE COSTS ON OUR BUSINESS AND CAN ALSO RESULT IN LIABILITY

We are subject to environmental laws around the world. These laws regulate many aspects of our operations, including our handling, storage, transport and disposal of hazardous materials. They can also impose cleanup liabilities, including with respect to discontinued operations. As a consequence, we can incur significant environmental costs and liabilities, some recurring and others not recurring. Although we follow procedures intended to comply with existing environmental laws, we, like other businesses, can never completely eliminate the risk of contamination or injury from certain materials that we use in our business and, therefore, the prospect of resulting claims and damage payments. We may also be assessed fines or penalties for failure to comply with environmental laws and regulations. Although insurance has provided coverage for portions of cleanup costs resulting from historical occurrences, we maintain only limited insurance coverage for costs or claims that might result from any future contamination.

Future changes in environmental laws could also increase our costs of doing business, perhaps significantly. Several countries, including some in the EU, now require medical equipment manufacturers to bear certain disposal costs of products at the end of the product’s useful life, increasing our costs. The EU has also adopted a directive that may lead to restrictions on the use of certain hazardous substances in some of our products sold there. This directive, along with another that requires material disclosure information to be provided upon request, could increase our operating costs. All of these costs, and any future violations or liabilities under environmental laws or regulations, could have a material adverse effect on our business.

UNFAVORABLE RESULTS OF LEGAL PROCEEDINGS COULD MATERIALLY ADVERSELY AFFECT OUR FINANCIAL RESULTS

From time to time, we are a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of our business or otherwise. We are currently involved in various legal proceedings and claims that have not yet been fully resolved and additional claims may arise in the future. Legal proceedings are often lengthy, taking place over a period of years with interim motions or judgments subject to multiple levels of review (such as appeals or rehearings) before the outcome is final. Litigation is subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations. For these and other reasons, we may choose to settle legal proceedings and claims, regardless of their actual merit.

If a legal proceeding were finally resolved against us, it could result in significant compensatory damages, and in certain circumstances punitive or trebled damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief imposed on us. If any final amounts owed were in excess of the amounts accrued or if other resolution or actions taken as a result of the legal proceeding were to restrain our ability to market one or more of our material products or services, our consolidated financial position, results of operations or cash flows could be materially adversely affected. In addition, legal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to our reputation, which could adversely impact our business.

AS A STRATEGY TO ASSIST OUR SALES EFFORTS, WE MAY PARTICIPATE IN PROJECT FINANCING OR OFFER EXTENDED PAYMENT TERMS, WHICH MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS

We have provided financing for the construction and start-up operations of the Scripps Proton Therapy Center, and we may be requested to provide financing to other potential VPT customers in the future. Some of this financing may be secured by assets of the borrower. Providing such financing could adversely affect our financial results, since we cannot provide any assurance that a center will be completed on time or within budget, that the center can or will generate sufficient patient volumes and revenues to support scheduled loan payments or to provide incremental revenue to us, or that the borrower will have the financial means to pay off any financing at maturity. In addition, in connection with our financing of the Scripps Proton Therapy Center, we cannot provide any assurance that that any portion of our loan commitment can be syndicated to third parties by ORIX Capital Markets LLC, the agent for the lenders, or that the loan facility can be successfully refinanced upon the maturity of the loan, which has a maximum term of six years. If a borrower does not have the financial means to pay off its debts and if we cannot recover our investment from the sale of any collateral, we may be required to write off the debt investment, which would adversely affect our financial results.

In addition, in some circumstances we offer longer or extended payment terms for qualified customers in our other businesses. Many of the areas where we offer such longer or extended payment terms have under-developed legal systems for securing debt and enforcing collection of debt. As of March 30, 2012, customer contracts with remaining terms of more than one year amounted to approximately 4% of our accounts receivable balance. While we qualify customers to whom we offer longer or extended payment terms, their financial positions may change adversely over the longer time period given for payment. This may result in an increase in payment defaults and uncollectible accounts, which would affect our net earnings. In addition, longer or extended payment terms could impact the timing of our revenue recognition, and they have in the past and may in the future result in an increase in our days sales outstanding.

DISRUPTION OF CRITICAL INFORMATION SYSTEMS OR MATERIAL BREACHES IN THE SECURITY OF OUR SYSTEMS MAY ADVERSELY AFFECT OUR BUSINESS AND CUSTOMER RELATIONS.

Information technology helps us operate efficiently, interface with and support our customers, maintain financial accuracy and efficiency, and accurately produce our financial statements. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to, among other things, transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through a security breach. If our data management systems do not effectively collect, secure, store, process and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, or human error, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows and the timeliness with which we report our operating results internally and externally.

Moreover, we manufacture and sell products that allow our customers to store confidential information about their patients. While we have implemented security measures to protect our systems from unauthorized access, these measures do not secure our customers’ equipment or any information stored in our customers’ systems or at their locations. A breach of network security and systems or other events that cause the loss or public disclosure of, or access by third parties to, our customers’ stored information could have serious negative consequences for our business, including possible fines, penalties and damages, reduced demand for our solutions, an unwillingness of our customers to use our solutions, harm to our reputation and brand, and time-consuming and expensive litigation, any of which could have an adverse effect on our financial results.

OUR OPERATIONS ARE VULNERABLE TO INTERRUPTION OR LOSS DUE TO NATURAL OR OTHER DISASTERS, POWER LOSS, STRIKES AND OTHER EVENTS BEYOND OUR CONTROL

We conduct a significant portion of our activities, including manufacturing, administration and data processing at facilities located in the State of California and other seismically active areas that have experienced major earthquakes and other natural disasters. We carry limited earthquake insurance that may not be adequate or continue to be available at commercially reasonable rates and terms. A major earthquake or other disaster (such as a major fire, flood, tsunami, volcanic eruption or terrorist attack) affecting our facilities, or those of our suppliers, could significantly disrupt our operations, and delay or prevent product manufacture and shipment during the time required to repair, rebuild or replace our or our suppliers’ damaged manufacturing facilities; these delays could be lengthy and costly. If any of our customers’ facilities are adversely affected by a disaster, shipments of our products could be delayed. Additionally, customers may delay purchases of our products until operations return to normal. Even if we are able to quickly respond to a disaster, the ongoing effects of the disaster could create some uncertainty in the operations of our businesses, such as the recent catastrophe in Japan has created. In addition, our facilities may be subject to a shortage of available electrical power and other energy supplies. Any shortages may increase our costs for power and energy supplies or could result in blackouts, which could disrupt the operations of our affected facilities and harm our business. Further, our products are typically shipped from a limited number of ports, and any disaster, strike or other event blocking shipment from these ports could delay or prevent shipments and harm our business. In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil or an outbreak of epidemic diseases, such as the swine flu, could have a negative effect on our business operations, those of our suppliers and customers, and the ability to travel, resulting in adverse consequences on our revenues and financial performance.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable

(b) Not applicable

(c) The following table provides information with respect to the shares of common stock repurchased by us during the second quarter of fiscal year 2012.


Period	Total Number of Shares Purchased			Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
December 31, 2011 - January 27, 2012		—		$	—		—		7,433,718
January 28, 2012 - February 24, 2012		565,678	(2)	$	66.37		500,000		6,933,718
February 25, 2012 - March 30, 2012		1,000,000		$	67.19		1,000,000		5,933,718

Total		1,565,678		$	66.89		1,500,000

(1)

In February 2011, VMS’s Board of Directors authorized the repurchase of 12,000,000 shares of VMS common stock through the end of our fiscal year 2012. We expect remaining repurchases under this authorization, if any, will be made in open market purchases, in privately negotiated transactions (including accelerated share repurchase programs) or under Rule 10b5-1 share repurchase plans, and may be made from time to time or in one or more blocks. Shares will be retired upon repurchase.

(2)

Includes 65,678 shares of VMS common stock that were tendered to VMS in satisfaction of tax withholding obligations upon the vesting of restricted common stock, restricted stock unit and deferred stock unit granted under the Company’s employee stock plans. Also includes 375,449 shares of VMS common stock that were received from BofA upon settlement of the August 2011 Repurchase Agreement. See Note 12, “Stockholders’ Equity” of the Notes to the Condensed Consolidated Financial Statements.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6. Exhibits

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


Exhibit No.		Description
10.1		Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.2		Form of Registrant’s Nonqualified Stock Option Agreement for Officers under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.3		Form of Registrant’s Non-Employee Director Nonqualified Stock Option Agreement under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.4		Form of Registrant’s Non-Employee Director Nonqualified Stock Option Agreement under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan (for use in Singapore).

10.5		Form of Registrant’s Restricted Stock Unit Agreement under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.6		Form of Registrant’s Performance Unit Agreement under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.7		Form of Registrant’s Grant Agreement for Deferred Stock Units under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.8		Form of Registrant’s Grant Agreement for Deferred Stock Units under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan (for use in Singapore).

15.1		Letter Regarding Unaudited Interim Financial Information.

31.1		Chief Executive Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act.

31.2		Chief Financial Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act.

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

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

101.INS†		XBRL Instance Document

101.SCH†		XBRL Taxonomy Extension Schema Document

101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†		XBRL Taxonomy Extension Label Linkbase Document

101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document

†

Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Earnings for the three and six months ended March 30, 2012 and April1, 2011; (ii) Condensed Consolidated Balance Sheets at March 30, 2012 and September 30, 2011; (iii) Condensed Consolidated Statements of Cash Flows for the six months ended March 30, 2012 and April1, 2011; and (iv) Notes to Condensed Consolidated Financial Statements for the three and six months ended March 30, 2012 and April1, 2011

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 MEDICAL SYSTEMS, INC.
	(Registrant)

Dated: May 8, 2012	By:	/ S / E LISHA W. F INNEY
		Elisha W. Finney
		Executive Vice President, Finance and
		Chief Financial Officer
		(Duly Authorized Officer and
		Principal Financial Officer)

INDEX TO EXHIBITS


Exhibit No.		Description
10.1		Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.2		Form of Registrant’s Nonqualified Stock Option Agreement for Officers under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.3		Form of Registrant’s Non-Employee Director Nonqualified Stock Option Agreement under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.4		Form of Registrant’s Non-Employee Director Nonqualified Stock Option Agreement under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan (for use in Singapore).

10.5		Form of Registrant’s Restricted Stock Unit Agreement under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.6		Form of Registrant’s Performance Unit Agreement under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.7		Form of Registrant’s Grant Agreement for Deferred Stock Units under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan.

10.8		Form of Registrant’s Grant Agreement for Deferred Stock Units under the Registrant’s Third Amended and Restated 2005 Omnibus Stock Plan (for use in Singapore).

15.1		Letter Regarding Unaudited Interim Financial Information.

31.1		Chief Executive Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act.

31.2		Chief Financial Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act.

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

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

101.INS†		XBRL Instance Document

101.SCH†		XBRL Taxonomy Extension Schema Document

101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†		XBRL Taxonomy Extension Label Linkbase Document

101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document

†

Exhibit 10.1

VARIAN MEDICAL SYSTEMS, INC.

THIRD AMENDED AND RESTATED

2005 OMNIBUS STOCK PLAN

TABLE OF CONTENTS


		Page

SECTION 1	BACKGROUND AND PURPOSE		1

1.1	Effective Date		1
1.2	Purpose of the Plan		1

SECTION 2	DEFINITIONS		1

2.1	“1934 Act”		1
2.2	“Affiliate”		1
2.3	“Award”		1
2.4	“Award Agreement”		1
2.5	“Board”		1
2.6	“Code”		1
2.7	“Committee”		1
2.8	“Company”		2
2.9	“Consultant”		2
2.10	“Deferred Stock Unit”		2
2.11	“Director”		2
2.12	“Disability”		2
2.13	“EBIT”		2
2.14	“EBITDA”		2
2.15	“Earnings Per Share”		2
2.16	“Employee”		2
2.17	“Exercise Price”		2
2.18	“Fair Market Value”		2
2.19	“Fiscal Year”		2
2.20	“Grant Date”		2
2.21	“Incentive Stock Option”		2
2.22	“Net Income”		2
2.23	“Net Orders”		2
2.24	“Non-employee Director”		3
2.25	“Non-qualified Stock Option”		3
2.26	“Operating Cash Flow”		3
2.27	“Option”		3
2.28	“Participant”		3
2.29	“Performance Goals”		3
2.30	“Performance Period”		3
2.31	“Performance Share”		3
2.32	“Performance Unit”		3
2.33	“Period of Restriction”		3
2.34	“Plan”		3
2.35	“Prior Plans”		4
2.36	“Restricted Stock”		4
2.37	“Restricted Stock Units”		4
2.38	“Retirement”		4
2.39	“Return on Assets”		4
2.40	“Return on Equity”		4
2.41	“Return on Sales”		4
2.42	“Revenue”		4
2.43	“Rule 16b-3”		4
2.44	“Section 16 Person”		4
2.45	“Shareholder Return”		4
2.46	“Shares”		4
2.47	“Stock Appreciation Right” or “SAR”		4

-i-

TABLE OF CONTENTS

(continued)


			Page

2.48	“Subsidiary”			4
2.49	“Termination of Service”			4

SECTION 3	ADMINISTRATION			5

3.1	The Committee			5
3.2	Authority of the Committee			5
3.3	Delegation by the Committee			5
3.4	Non-employee Directors			5
3.5	Decisions Binding			5

SECTION 4	SHARES SUBJECT TO THE PLAN			5

4.1	Number of Shares			5
4.2	Lapsed Awards			6
4.3	Adjustments in Awards and Authorized Shares			6

SECTION 5	STOCK OPTIONS			6

5.1	Grant of Options			6
5.2	Award Agreement			6
5.3	Exercise Price			6
	5.3.1	Non-qualified Stock Options		6
	5.3.2	Incentive Stock Options		6
	5.3.3	Substitute Options		7
5.4	Expiration of Options			7
	5.4.1	Expiration Dates		7
	5.4.2	Death of Participant		7
	5.4.3	Committee Discretion		7
5.5	Exercisability of Options			7
5.6	Payment			7
5.7	Restrictions on Share Transferability			8
5.8	Certain Additional Provisions for Incentive Stock Options			8
	5.8.1	Exercisability		8
	5.8.2	Termination of Service		8
	5.8.3	Company and Subsidiaries Only		8
	5.8.4	Expiration		8

SECTION 6	STOCK APPRECIATION RIGHTS			8

6.1	Grant of SARs			8
6.2	Exercise Price and Other Terms			8
6.3	SAR Agreement			8
6.4	Expiration of SARs			8
6.5	Payment of SAR Amount			9
6.6	Payment Upon Exercise of SAR			9

SECTION 7	RESTRICTED STOCK AND RESTRICTED STOCK UNITS			9

7.1	Grant of Restricted Stock and Restricted Stock Units			9
7.2	Restricted Stock and Restricted Stock Units Agreement			9
7.3	Transferability			9
7.4	Other Restrictions			9
	7.4.1	General Restrictions		9
	7.4.2	Section 162(m) Performance Restrictions		9
	7.4.3	Legend on Certificates		9

-ii-

TABLE OF CONTENTS

(continued)


			Page

7.5	Removal of Restrictions			10
7.6	Voting Rights			10
7.7	Dividends and Other Distributions			10
7.8	Return of Restricted Stock to Company			10

SECTION 8	PERFORMANCE UNITS AND PERFORMANCE SHARES			10

8.1	Grant of Performance Units and Shares			10
8.2	Initial Value			10
8.3	Performance Objectives and Other Terms			10
	8.3.1	General Performance Objectives		10
	8.3.2	Section 162(m) Performance Objectives		10
8.4	Earning of Performance Units and Performance Shares			11
8.5	Form and Timing of Payment			11
8.6	Cancellation			11

SECTION 9	NON-EMPLOYEE DIRECTORS			11

9.1	Non-Employee Director Options			11
9.2	Terms of Options			11
	9.2.1	Option Agreement		11
	9.2.2	Exercise Price		11
	9.2.3	Exercisability		11
	9.2.4	Expiration of Options		11
	9.2.5	Death of Director		12
	9.2.6	Not Incentive Stock Options		12
	9.2.7	Other Terms		12
9.3	Substitute Options			12
9.4	Elections by Non-employee Directors			12
9.5	Deferred Stock Units			12
9.6	Terms of Deferred Stock Units			12
	9.6.1	Deferred Stock Unit Agreement		12
	9.6.2	Vesting		12
	9.6.3	Payment		12
	9.6.4	Other Terms		13

SECTION 10	MISCELLANEOUS			13

10.1	No Effect on Employment or Service			13
10.2	Participation			13
10.3	Indemnification			13
10.4	Successors			13
10.5	Beneficiary Designations			13
10.6	Nontransferability of Awards			13
10.7	No Rights as Stockholder			13
10.8	Withholding Requirements			14
10.9	Withholding Arrangements			14
10.10	Deferrals			14
10.11	Dividend Equivalents			14
10.12	Prohibition on Repricings			14
10.13	Maximum Term of Options and SARs			14
10.14	Restatement of Financial Results			14

SECTION 11	AMENDMENT, TERMINATION AND DURATION			15

-iii-

TABLE OF CONTENTS

(continued)


		Page

11.1	Amendment, Suspension or Termination		15
11.2	Duration of the Plan		15

SECTION 12	LEGAL CONSTRUCTION		15

12.1	Gender and Number		15
12.2	Severability		15
12.3	Requirements of Law		15
12.4	Governing Law		15
12.5	Captions		15

EXECUTION			15

-iv-

VARIAN MEDICAL SYSTEMS, INC.

THIRD AMENDED AND RESTATED

2005 OMNIBUS STOCK PLAN

SECTION 1

BACKGROUND AND PURPOSE

1.1 Effective Date . The Varian medical Systems, Inc. 2005 Omnibus Stock Plan was originally adopted by Varian Medical Systems, Inc., a Delaware corporation, on November 19, 2004 and became effective upon its approval by a majority of the shares of the common stock of the Company’s stockholders on February 17, 2005. On December 7, 2005, the Board approved an amended and restated Plan, which was approved at the Company’s 2006 Annual Meeting of Stockholders. On November 17, 2006, the Board approved the second amended and restated Plan, which was approved at the Company’s 2007 Annual Meeting of Stockholders. On November 11, 2011 (the “Adoption Date”), the Board approved this third amended and restated Plan, provided that this Plan amendment and restatement is approved by a vote of the majority of the shares of the common stock of the Company which are present in person or by proxy and entitled to vote at the Company’s 2012 Annual Meeting of Stockholders.

1.2 Purpose of the Plan . The Plan is intended to increase incentives and to encourage Share ownership on the part of (1) employees of the Company and its Affiliates, (2) consultants who provide significant services to the Company and its Affiliates, and (3) directors of the Company who are employees of neither the Company nor any Affiliate. The Plan also is intended to further the growth and profitability of the Company. The Plan is intended to permit the grant of Awards that qualify as performance-based compensation under section 162(m) of the Code.

SECTION 2

DEFINITIONS

The following words and phrases shall have the following meanings unless a different meaning is plainly required by the context:

2.1 “1934 Act” means the Securities Exchange Act of 1934, as amended. Reference to a specific section of the 1934 Act or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.

2.2 “Affiliate” means any corporation or any other entity (including, but not limited to, partnerships and joint ventures) controlling, controlled by, or under common control with the Company.

2.3 “Award” means, individually or collectively, a grant under the Plan of Non-qualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares or Deferred Stock Units.

2.4 “Award Agreement” means the written agreement setting forth the terms and provisions applicable to each Award granted under the Plan.

2.5 “Board” means the Board of Directors of the Company.

2.6 “Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated thereunder, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.

2.7 “Committee” means the committee appointed by the Board (pursuant to Section 3.1) to administer the Plan.

2.8 “Company” means Varian Medical Systems, Inc., a Delaware corporation, or any successor thereto.

2.9 “Consultant” means any consultant, independent contractor, or other person who provides significant services to the Company or its Affiliates, but who is neither an Employee nor a Director.

2.10 “Deferred Stock Unit” means a Deferred Stock Unit granted pursuant to Section 9.5.

2.11 “Director ” means any individual who is a member of the Board.

2.12 “Disability” means a permanent and total disability within the meaning of section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Committee in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Committee from time to time. Notwithstanding the foregoing, to the extent “Disability” is used to establish a payment event with respect to any Award subject to section 409A of the Code, “Disability” shall have the meaning set forth in section 409A of the Code and the applicable guidance issued by the Secretary of the Treasury thereunder.

2.13 “EBIT” means as to any Performance Period, the Company’s or a business unit’s income before reductions for interest and taxes, determined in accordance with generally accepted accounting principles.

2.14 “EBITDA” means as to any Performance Period, the Company’s or a business unit’s income before reductions for interest, taxes, depreciation and amortization, determined in accordance with generally accepted accounting principles.

2.15 “Earnings Per Share” means as to any Performance Period, the Company’s or a business unit’s Net Income, divided by a weighted average number of common shares outstanding and dilutive common equivalent shares deemed outstanding, determined in accordance with generally accepted accounting principles.

2.16 “Employee” means any employee of the Company or of an Affiliate, whether such employee is so employed at the time the Plan is adopted or becomes so employed subsequent to the adoption of the Plan.

2.17 “Exercise Price” means the price at which a Share may be purchased by a Participant pursuant to the exercise of an Option.

2.18 “Fair Market Value” means the last quoted per share selling price for Shares on the relevant date, or if there were no sales on such date, the last quoted per share price for Shares on the next date on which there were sales of Shares. Notwithstanding the preceding, for federal, state and local income tax reporting purposes, fair market value shall be determined by the Committee in accordance with uniform and nondiscriminatory standards adopted by it from time to time.

2.19 “Fiscal Year” means the fiscal year of the Company.

2.20 “Grant Date” means, with respect to an Award, the date that the Award was granted.

2.21 “Incentive Stock Option” means an Option to purchase Shares which is designated as an Incentive Stock Option and is intended to meet the requirements of section 422 of the Code.

2.22 “Net Income” means as to any Performance Period, the Company’s or a business unit’s income after taxes, determined in accordance with generally accepted accounting principles.

2.23 “Net Orders” means as to any Performance Period, the Company’s or a business unit’s net orders calculated (and reviewed by the Company’s external independent auditors in accordance with agreed standard procedures) for and reported in the Company’s quarterly financial earnings press release filed by the Company on a Current Report on Form 8-K.

2.24 “Non-employee Director” means a Director who is an employee of neither the Company nor of any Affiliate.

2.25 “Non-qualified Stock Option” means an option to purchase Shares which is not intended to be an Incentive Stock Option.

2.26 “Operating Cash Flow” means as to any Performance Period, the Company’s or a business unit’s sum of Net Income plus depreciation and amortization less capital expenditures plus changes in working capital comprised of accounts receivable, inventories, other current assets, trade accounts payable, accrued expenses, product warranty, advance payments from customers and long-term accrued expenses, determined in accordance with generally acceptable accounting principles.

2.27 “Option” means an Incentive Stock Option or a Non-qualified Stock Option.

2.28 “Participant” means an Employee, Consultant, or Non-employee Director who has an outstanding Award.

2.29 “Performance Goals” means the goal(s) (or combined goal(s)) determined by the Committee (in its discretion) to be applicable to a Participant with respect to an Award. As determined by the Committee, the Performance Goals applicable to an Award may provide for a targeted level or levels of achievement using one or more of the following measures: (a) EBIT, (b) EBITDA, (c) Earnings Per Share, (d) Net Income, (e) Operating Cash Flow, (f) Return on Assets, (g) Return on Equity, (h) Return on Sales, (i) Revenue, (j) Shareholder Return, (k) orders or Net Orders, (l) expenses, (m) cost of goods sold, (n) profit/loss or profit margin, (o) working capital, (p) operating income, (q) cash flow, (r) market share, (s) return on equity, (t) economic value add, (u) stock price of the Company’s stock, (v) price/earning ratio, (w) debt or debt-to-equity ratio, (x) accounts receivable, (y) cash, (z) write-off, (aa) assets, (bb) liquidity, (cc) operations, (dd) intellectual property ( e.g. , patents), (ee) product development, (ff) regulatory activities, (gg) manufacturing, production or inventory, (hh) mergers, acquisitions or divestitures, (ii) financings, (jj) days sales outstanding, (kk) backlog, (ll) deferred revenue, and (mm) employee headcount. The Performance Goals may differ from Participant to Participant and from Award to Award. Prior to the Determination Date, the Committee shall determine whether any significant element(s) shall be included in or excluded from the calculation of any Performance Goal with respect to any Participant. “Determination Date” means the latest possible date that will not jeopardize an Award’s qualification as performance-based compensation under section 162(m) of the Code. Notwithstanding the previous sentence, for Awards not intended to qualify as performance-based compensation, “Determination Date” shall mean such date as the Committee may determine in its discretion.

2.30 “Performance Period” means any fiscal period not to exceed three consecutive Fiscal Years, as determined by the Committee in its sole discretion.

2.31 “Performance Share” means a Performance Share granted to a Participant pursuant to Section 8.

2.32 “Performance Unit” means a Performance Unit granted to a Participant pursuant to Section 8.

2.33 “Period of Restriction” means the period during which shares of Restricted Stock are subject to forfeiture and/or restrictions on transferability.

2.34 “Plan” means the Varian Medical Systems, Inc. Third Amended and Restated 2005 Omnibus Stock Plan, as set forth in this instrument and as hereafter amended from time to time.

2.35 “Prior Plans” means the Varian Medical Systems, Inc. Omnibus Stock Plan approved by the Company’s stockholders effective April 3, 1999 and the Varian Medical Systems, Inc. 2000 Stock Plan adopted by the Company’s Board of Directors effective November 17, 2000.

2.36 “Restricted Stock” means an Award granted to a Participant pursuant to Section 7.

2.37 “Restricted Stock Units” means a Restricted Stock Unit granted to a Participant pursuant to Section 7.

2.38 “Retirement” means, in the case of an Employee or a Non-employee Director, “Retirement” as defined pursuant to the Company’s or the Board’s Retirement Policies, as they may be established from time to time. With respect to a Consultant, no Termination of Service shall be deemed to be on account of “Retirement.”

2.39 “Return on Assets” means as to any Performance Period, the percentage equal to the Company’s or a business unit’s EBIT before incentive compensation, divided by average net Company or business unit, as applicable, assets, determined in accordance with generally accepted accounting principles.

2.40 “Return on Equity” means as to any Performance Period, the percentage equal to the Company’s Net Income divided by average stockholder’s equity, determined in accordance with generally accepted accounting principles.

2.41 “Return on Sales” means as to any Performance Period, the percentage equal to the Company’s or a business unit’s EBIT before incentive compensation, divided by the Company’s or the business unit’s, as applicable, Revenue, determined in accordance with generally accepted accounting principles.

2.42 “Revenue” means as to any Performance Period, the Company’s or a business unit’s net sales, determined in accordance with generally accepted accounting principles.

2.43 “Rule 16b-3” means Rule 16b-3 promulgated under the 1934 Act, as amended, and any future regulation amending, supplementing or superseding such regulation.

2.44 “Section 16 Person” means a person who, with respect to the Shares, is subject to section 16 of the 1934 Act.

2.45 “Shareholder Return” means as to any Performance Period, the total return (change in share price plus reinvestment of any dividends) of a Share.

2.46 “Shares” means shares of the Company’s common stock, $1.00 par value.

2.47 “Stock Appreciation Right” or “SAR” means an Award, granted alone, in connection or in tandem with a related Option, that pursuant to Section 6 is designated as a SAR.

2.48 “Subsidiary” means any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

2.49 “Termination of Service” means (a) in the case of an Employee, a cessation of the employee-employer relationship between an Employee and the Company or an Affiliate for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, Disability, Retirement, or the disaffiliation of an Affiliate, but excluding any such termination where there is a simultaneous reemployment by the Company or an Affiliate; (b) in the case of a Consultant, a cessation of the service relationship between a Consultant and the Company or an Affiliate for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, Disability, or the disaffiliation of an Affiliate, but excluding any such termination where there is a simultaneous re-engagement of the consultant by the Company or an Affiliate; and (c) in the case of

a Non-employee Director, a cessation of the Non-employee Director’s service on the Board for any reason. Notwithstanding the foregoing, to the extent that “Termination of Service” is used to establish a payment event with respect to any Award subject to section 409A of the Code, “Termination of Service” shall have the same meaning as “separation from service” as that term is defined in section 409A of the Code and the applicable guidance issued by the Secretary of the Treasury thereunder.

SECTION 3

ADMINISTRATION

3.1 The Committee . The Plan shall be administered by the Committee. The Committee shall consist of not less than two (2) Directors. The members of the Committee shall be appointed from time to time by, and serve at the pleasure of, the Board. Each member of the Committee shall qualify as (a) a “non-employee director” under Rule 16b-3, (b) an “independent director” under section 303A.02 of the New York Stock Exchange listing standards rules, and (c) an “outside director” under section 162(m) of the Code. If it is later determined that one or more members of the Committee do not so qualify, actions taken by the Committee prior to such determination shall be valid despite such failure to qualify.

3.2 Authority of the Committee . It shall be the duty of the Committee to administer the Plan in accordance with the Plan’s provisions. The Committee shall have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including, but not limited to, the power to (a) determine which Employees and Consultants shall be granted Awards, (b) prescribe the terms and conditions of the Awards (other than the Options granted to Non-employee Directors pursuant to Section 9), (c) interpret the Plan and the Awards, (d) adopt such procedures, agreements, arrangements, sub plans and terms as are necessary or appropriate to permit participation in the Plan by Employees, Consultants and Directors who are foreign nationals or employed outside of the United States, (e) adopt rules for the administration, interpretation and application of the Plan as are consistent therewith, and (f) interpret, amend or revoke any such rules. Notwithstanding any contrary provision of the Plan, the Committee may reduce the amount payable under any Award (other than an Option) after the grant of such Award.

3.3 Delegation by the Committee . The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or any part of its authority and powers under the Plan to one or more directors and/or officers of the Company; provided, however, that the Committee may not delegate its authority and powers (a) with respect to Section 16 Persons, (b) in any way which would jeopardize the Plan’s qualification under Rule 16b-3, or (c) with respect to Awards which are intended to qualify as performance-based compensation under section 162(m) of the Code.

3.4 Non-employee Directors . Notwithstanding any contrary provision of this Section 3, the Board shall administer Section 9 of the Plan, and the Committee shall exercise no discretion with respect to Section 9. In the Board’s administration of Section 9 and the Awards and any Shares granted to Non-employee Directors, the Board shall have all of the authority and discretion otherwise granted to the Committee with respect to the administration of the Plan.

3.5 Decisions Binding . All determinations and decisions made by the Committee, the Board, and any delegate of the Committee pursuant to the provisions of the Plan shall be final, conclusive, and binding on all persons, and shall be given the maximum deference permitted by law.

SECTION 4

SHARES SUBJECT TO THE PLAN

4.1 Number of Shares . Prior to this request for approval of this third amended and restated Plan, and subject to adjustment as provided in Section 4.3, the total number of Shares available for issuance under the Plan shall not exceed 18,950,000, plus such number of Shares as are granted pursuant to substitute Options under Sections 5.3.3 and 9.3. No further grants may be made under the Prior Plans, but Shares authorized for issuance under the Prior Plans that have not been issued under the prior Plans may be issued pursuant to Awards granted under this Plan in addition to the number of Shares specified immediately above. In addition, if an award previously granted under the Prior Plans terminates, expires, or lapses for any reason, any Shares subject to such award shall again be available to be the subject of an Award under the Plan. Shares issued under the Plan may be either authorized but unissued Shares or treasury Shares. Upon approval of this third amended and restated Plan by the

stockholders of the Company, an additional 6,000,000 Shares shall be available for issuance under the Plan. For purposes of this Section 4.1, effective with respect to Awards granted on or after the date the stockholders of the Company approve this third amended and restated Plan, any Shares that are subject to Awards of Options or Stock Appreciation Rights shall be counted against the limit stated in this Section 4.1 as one (1) Share for every (1) Share issued, and any shares issued in connection with Awards other than Options and Stock Appreciation Rights shall be counted against the limit stated in this Section 4.1 as 2.6 Shares for every one (1) Share issued. Except as provided in Section 4.2, if fewer Shares are issued in settlement of an Award than were covered by such Award, then the Shares not issued shall not be available for issuance under the Plan. All of the Shares available for issuance under the Plan may be issued as Incentive Stock Options.

4.2 Lapsed Awards . If an Award terminates, expires, or lapses for any reason, any Shares subject to such Award (plus the number of additional shares, if any, that counted against the share pool using the share counting rule in effect at the time the Award was granted) again shall be available to be the subject of an Award. In addition, Shares issued pursuant to Awards assumed or issued in substitution of other awards in connection with the acquisition by the Company of an unrelated entity shall not reduce the maximum number of Shares issuable under Section 4.1.

4.3 Adjustments in Awards and Authorized Shares . In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares, the Committee shall adjust the number and class of Shares which may be delivered under the Plan, the number, class, and price of Shares subject to outstanding Awards, and the numerical limit of Section 5.1 in such manner as the Committee (in its sole discretion) shall determine to be appropriate to prevent the dilution or diminution of such Awards. In the case of Options granted to Non-employee Directors, the foregoing adjustments shall be made by the Board. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number.

SECTION 5

STOCK OPTIONS

5.1 Grant of Options . Subject to the terms and provisions of the Plan, Options may be granted to Employees and Consultants at any time and from time to time as determined by the Committee in its sole discretion. The Committee, in its sole discretion, shall determine the number of Shares subject to each Option, provided that during any Fiscal Year, no Participant shall be granted Options covering more than 4,000,000 Shares. The Committee may grant Incentive Stock Options, Non-qualified Stock Options, or a combination thereof. Non-Qualified Stock Options may be granted under the Plan pursuant to Section 9 to Non-employee Directors by the Board, which shall determine the terms of such Options.

5.2 Award Agreement . Each Option shall be evidenced by an Award Agreement that shall specify the Exercise Price, the expiration date of the Option, the number of Shares to which the Option pertains, any conditions to exercise of the Option, and such other terms and conditions as the Committee, in its discretion, shall determine. The Award Agreement shall specify whether the Option is intended to be an Incentive Stock Option or a Non-qualified Stock Option.

5.3 Exercise Price . Subject to the provisions of this Section 5.3, the Exercise Price for each Option shall be determined by the Committee in its sole discretion.

5.3.1 Non-qualified Stock Options . In the case of a Non-qualified Stock Option, the Exercise Price shall be not less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date.

5.3.2 Incentive Stock Options . In the case of an Incentive Stock Option, the Exercise Price shall be not less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date; provided, however, that if on the Grant Date, the Employee (together with persons whose stock ownership is attributed to the Employee pursuant to section 424(d) of the Code) owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, the Exercise Price shall be not less than one hundred and ten percent (110%) of the Fair Market Value of a Share on the Grant Date.

5.3.3 Substitute Options . Notwithstanding the provisions of Sections 5.3.1 and 5.3.2, in the event that the Company or an Affiliate consummates a transaction described in section 424(a) of the Code (e.g., the acquisition of property or stock from an unrelated corporation), persons who become Employees or Consultants on account of such transaction may be granted Options in substitution for options granted by their former employer. If such substitute Options are granted, the Committee, in its sole discretion and consistent with section 424(a) of the Code, shall determine the exercise price of such substitute Options.

5.4 Expiration of Options .

5.4.1 Expiration Dates . Subject to Section 10.13, except as set forth in each Award Agreement, each Option shall terminate no later than the first to occur of the following events:

(a) The expiration of seven (7) years from the Grant Date; or

(b) The expiration of three (3) months from the date of the Participant’s Termination of Service for a reason other than the Participant’s death, Disability or Retirement; or

(d) The expiration of three (3) years from the date of the Participant’s Retirement (subject to Section 5.8.2 regarding Incentive Stock Options); or

(e) The date of the Participant’s Termination of Service by the Company for cause (as determined by the Company).

5.4.2 Death of Participant . Subject to Section 10.13, notwithstanding Section 5.4.1, if a Participant who is an Employee dies prior to the expiration of his or her Options, his or her Options shall be exercisable until the expiration of three (3) years after the date of death. If a Participant who is a Consultant dies prior to the expiration of his or her Options, the Committee, in its discretion, may provide that his or her Options shall be exercisable for up to three (3) years after the date of death.

5.4.3 Committee Discretion . Subject to the limits of Sections 5.4.1, 5.4.2 and 10.13, the Committee, in its sole discretion, (a) shall provide in each Award Agreement when each Option expires and becomes unexercisable, and (b) may, after an Option is granted and before such Option expires, extend the maximum term of the Option (subject to Section 5.8.4 regarding Incentive Stock Options).

5.5 Exercisability of Options . Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall determine in its sole discretion. After an Option is granted, the Committee, in its sole discretion, may accelerate the exercisability of the Option. If a Participant dies while an Employee, the exercisability of his or her Options shall be fully accelerated to the date of Termination of Service.

5.6 Payment . Options shall be exercised by the Participant’s delivery of a written notice of exercise to the Secretary of the Company (or its designee), setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares.

Upon the exercise of any Option, the Exercise Price shall be payable to the Company in full in cash or its equivalent. The Committee, in its sole discretion, also may permit exercise (a) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Exercise Price, or (b) by any other means which the Committee, in its sole discretion, determines both to provide legal consideration for the Shares and to be consistent with the purposes of the Plan.

As soon as practicable after receipt of a written notification of exercise and full payment for the Shares purchased, the Company shall deliver to the Participant (or the Participant’s designated broker) Share certificates (which may be in book entry form) representing such Shares.

5.7 Restrictions on Share Transferability . The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option as it may deem advisable, including, but not limited to, restrictions related to applicable Federal securities laws, the requirements of any national securities exchange or system upon which Shares are then listed or traded, or any blue sky or state securities laws.

5.8 Certain Additional Provisions for Incentive Stock Options .

5.8.1 Exercisability . The aggregate Fair Market Value (determined on the Grant Date(s)) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by any Employee during any calendar year (under all plans of the Company and its Subsidiaries) shall not exceed $100,000.

5.8.2 Termination of Service . If any portion of an Incentive Stock Option is exercised more than three (3) months after the Participant’s Termination of Service for any reason other than Disability or death (unless (a) the Participant dies during such three-month period, and (b) the Award Agreement or the Committee permits later exercise), the portion so exercised shall be deemed a Non-qualified Stock Option.

5.8.3 Company and Subsidiaries Only . Incentive Stock Options may be granted only to persons who are employees of the Company or a Subsidiary on the Grant Date.

5.8.4 Expiration . No Incentive Stock Option may be exercised after the expiration of seven (7) years from the Grant Date; provided, however, that if the Option is granted to an Employee who, together with persons whose stock ownership is attributed to the Employee pursuant to section 424(d) of the Code, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of the stock of the Company or any of its Subsidiaries, the Option may not be exercised after the expiration of five (5) years from the Grant Date.

SECTION 6

STOCK APPRECIATION RIGHTS

6.1 Grant of SARs . Subject to the terms and conditions of the Plan, SARs may be granted to Employees and Consultants at any time and from time to time as shall be determined by the Committee, in its sole discretion. The Committee shall have complete discretion to determine the number of SARs granted to any Participant, provided that during any Fiscal Year, no Participant shall be granted SARs covering more than 2,000,000 Shares.

6.2 Exercise Price and Other Terms . The Committee, subject to the provisions of the Plan, shall have complete discretion to determine the terms and conditions of SARs granted under the Plan. However, the exercise price of a SAR shall be not less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date.

6.3 SAR Agreement . Each SAR grant shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Committee, in its sole discretion, shall determine.

6.4 Expiration of SARs . A SAR granted under the Plan shall expire upon the date determined by the Committee, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4 and 10.13 also shall apply to SARs.

6.5 Payment of SAR Amount . Upon exercise of a SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:

(a) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times

(b) The number of Shares with respect to which the SAR is exercised.

6.6 Payment Upon Exercise of SAR . At the discretion of the Committee, payment for a SAR may be in cash, Shares or a combination thereof.

SECTION 7

RESTRICTED STOCK AND RESTRICTED STOCK UNITS

7.1 Grant of Restricted Stock and Restricted Stock Units . Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock or Restricted Stock Units to Employees and Consultants in such amounts as the Committee, in its sole discretion, shall determine. The Committee, in its sole discretion, shall determine the number of Shares to be granted to each Participant, provided that during any Fiscal Year, no Participant shall be granted more than 400,000 Shares of Restricted Stock or Restricted Stock Units.

7.2 Restricted Stock and Restricted Stock Units Agreement . Each Award of Restricted Stock or Restricted Stock Units shall be evidenced by an Award Agreement that shall specify the Period of Restriction, the number of Shares granted, any price to be paid for the Shares, and such other terms and conditions as the Committee, in its sole discretion, shall determine. Unless the Committee determines otherwise, Shares of Restricted Stock shall be held by the Company as escrow agent until the restrictions on such Shares have lapsed.

7.3 Transferability . Shares of Restricted Stock or Restricted Stock Units may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.

7.4 Other Restrictions . The Committee, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock or Restricted Stock Units as it may deem advisable or appropriate, in accordance with this Section 7.4.

7.4.1 General Restrictions . The Committee may set restrictions based upon the achievement of specific performance objectives (Company-wide, business unit or individual), applicable federal or state securities laws, or any other basis determined by the Committee in its discretion.

7.4.2 Section 162(m) Performance Restrictions. For purposes of qualifying grants of Restricted Stock and Restricted Stock Units as “performance-based compensation” under section 162(m) of the Code, the Committee, in its discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals shall be set by the Committee on or before the latest date permissible to enable the Restricted Stock or Restricted Stock Units to qualify as “performance-based compensation” under section 162(m) of the Code. In granting Restricted Stock or Restricted Stock Units which is intended to qualify under section 162(m) of the Code, the Committee shall follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Restricted Stock or Restricted Stock Units under section 162(m) of the Code (e.g., in determining the Performance Goals).

7.4.3 Legend on Certificates . The Committee, in its discretion, may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. For example, the Committee may determine that some or all certificates representing Shares of Restricted Stock shall bear the following legend:

“The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in the Varian Medical Systems, Inc. 2005 Omnibus Stock Plan, and in a Restricted Stock Agreement. A copy of the Plan and such Restricted Stock Agreement may be obtained from the Secretary of Varian Medical Systems, Inc.”

7.5 Removal of Restrictions . Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall be released from escrow as soon as practicable after the last day of the Period of Restriction. The Committee, in its discretion, may accelerate the time at which any restrictions shall lapse, and remove any restrictions. After the restrictions have lapsed, the Participant shall be entitled to have any legend or legends under Section 7.4 removed from his or her Share certificate, and the Shares shall be freely transferable by the Participant.

7.6 Voting Rights . During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless otherwise provided in the Award Agreement.

7.7 Dividends and Other Distributions . During the Period of Restriction, Participants holding Shares of Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Agreement. If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.

7.8 Return of Restricted Stock to Company . On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed shall revert to the Company and again shall become available for grant under the Plan.

SECTION 8

PERFORMANCE UNITS AND PERFORMANCE SHARES

8.1 Grant of Performance Units and Shares . Performance Units and Performance Shares may be granted to Employees and Consultants at any time and from time to time, as shall be determined by the Committee, in its sole discretion. The Committee shall have complete discretion in determining the number of Performance Units and Performance Shares granted to any Participant, provided that during any Fiscal Year, no more than 400,000 Performance Shares or Performance Units may be granted to any Participant.

8.2 Initial Value . Each Performance Unit shall have an initial value that is established by the Committee on or before the Grant Date, provided that such value shall not exceed the Fair Market Value of a Share on the Grant Date. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the Grant Date.

8.3 Performance Objectives and Other Terms . The Committee shall set performance objectives in its discretion, which, depending on the extent to which they are met, will determine the number or value of Performance Units or Shares that will be paid out to the Participants. The Committee may set performance objectives based upon the achievement of Company-wide, business unit, or individual goals, or any other basis determined by the Committee in its discretion. The time period during which the performance objectives must be met shall be called the “Performance Period.” Each Award of Performance Units or Shares shall be evidenced by an Award Agreement that shall specify the Performance Period, and such other terms and conditions as the Committee, in its sole discretion, shall determine.

8.3.1 General Performance Objectives . The Committee may set performance objectives based upon the achievement of Company-wide, business unit or individual goals, or any other basis determined by the Committee in its discretion.

8.3.2 Section 162(m) Performance Objectives . For purposes of qualifying grants of Performance Units or Shares as “performance-based compensation” under section 162(m) of the Code, the

Committee, in its discretion, may determine that the performance objectives applicable to Performance Units or Shares shall be based on the achievement of Performance Goals. The Performance Goals shall be set by the Committee on or before the latest date permissible to enable the Performance Units or Shares to qualify as “performance-based compensation” under section 162(m) of the Code. In granting Performance Units or Shares which are intended to qualify under section 162(m) of the Code, the Committee shall follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Performance Units or Shares under section 162(m) of the Code (e.g., in determining the Performance Goals).

8.4 Earning of Performance Units and Performance Shares . After the applicable Performance Period has ended, the Participant shall be entitled to receive a payout of the number of Performance Units or Shares earned during the Performance Period, depending upon the extent to which the applicable performance objectives have been achieved. After the grant of a Performance Unit or Share, the Committee, in its sole discretion, may reduce or waive any performance objectives for Award.

8.5 Form and Timing of Payment . Payment of earned Performance Units or Performance Shares shall be made as soon as practicable after the expiration of the applicable Performance Period. The Committee, in its sole discretion, may pay such earned Awards in cash, Shares or a combination thereof.

8.6 Cancellation . On the date set forth in the Award Agreement, all unearned or unvested Performance Units or Performance Shares shall be forfeited to the Company, and again shall be available for grant under the Plan.

SECTION 9

NON-EMPLOYEE DIRECTORS

9.1 Non-Employee Director Options . Subject to the terms and provisions of the Plan, Non-qualified Stock Options may be issued to Non-employee Directors at any time and from time to time, as determined by the Board in its sole discretion, including the number of Shares subject to each Option, and the terms and conditions of such Awards.

9.2 Terms of Options .

9.2.1 Option Agreement . Each Option granted pursuant to this Section 9 shall be evidenced by a written stock option agreement, which shall be executed by the Non-employee Director and the Company.

9.2.2 Exercise Price . The Exercise Price for the Shares subject to each Option granted pursuant to this Section 9 shall be one hundred percent (100%) of the Fair Market Value of such Shares on the Grant Date.

9.2.3 Exercisability . Unless provided otherwise in an Award Agreement, each Option granted pursuant to this Section 9 shall be fully exercisable on the Grant Date.

9.2.4 Expiration of Options . Subject to Section 10.13, unless provided otherwise in an Award Agreement, each Option shall terminate upon the first to occur of the following events:

(a) The expiration of seven (7) years from the Grant Date; or

(b) The expiration of three (3) months from the date of the Non-employee Director’s Termination of Service for a reason (including, but not limited to the Non-Employee Director’s resignation) other than death, Disability, completion of the Participant’s term as a Director or Retirement; or

(c) The expiration of three (3) years from the date of the Non-employee Director’s Termination of Service by reason of completion of the Participant’s term as a Director, Disability or Retirement.

9.2.5 Death of Director . Subject to Section 10.13, notwithstanding Section 9.2.4, if a Non-employee Director dies prior to the expiration of his or her options in accordance with Section 9.2.4, his or her options shall terminate three (3) years after the date of his or her death.

9.2.6 Not Incentive Stock Options . Options granted pursuant to this Section 9 shall not be designated as Incentive Stock Options.

9.2.7 Other Terms . Unless provided otherwise in an Award Agreement, all provisions of the Plan not inconsistent with this Section 9 shall apply to Options granted to Non-employee Directors; provided, however, that Section 5.2 (relating to the Committee’s discretion to set the terms and conditions of Options) shall be inapplicable with respect to Non-employee Directors.

9.3 Substitute Options . Notwithstanding the provisions of Section 9.2.2, in the event that the Company or an Affiliate consummates a transaction described in section 424(a) of the Code (e.g., the acquisition of property or stock from an unrelated corporation), persons who become Non-employee Directors on account of such transaction may be granted Options in substitution for options granted by their former employer. If such substitute Options are granted, the Committee, in its sole discretion and consistent with section 424(a) of the Code, shall determine the exercise price of such substitute Options.

9.4 Elections by Non-employee Directors . Pursuant to such procedures as the Board (in its discretion) may adopt from time to time, each Non-employee Director may elect to forego receipt of all or a portion of the annual retainer, committee chair fees, meeting attendance fees and other cash compensation otherwise due to the Non-employee Director in exchange for Shares. The number of Shares received by any Non-employee Director shall equal the amount of foregone compensation divided by the Fair Market Value of a Share on the date that the compensation otherwise would have been paid to the Non-employee Director, rounded up to the nearest whole number of Shares. In addition, pursuant to such procedures as the Board (in its discretion) may adopt from time to time, each Non-employee Director may elect to forego receipt of all or a portion of the annual retainer, committee chair and meeting attendance fees and other cash compensation otherwise due to the Non-employee Director in exchange for an Option to purchase Shares. The number of Shares subject to such an Option received by any Non-employee Director shall equal the amount of foregone compensation multiplied by four (4) and divided by the Fair Market Value of a Share on the date that the compensation otherwise would have been paid to the Non-employee Director, rounded up to the nearest whole number of Shares. All Options granted pursuant to this Section 9.4 shall be subject to the restrictions of Section 9.2.

9.5 Deferred Stock Units . Subject to the terms and provisions of the Plan, Awards of Deferred Stock Units may be granted to Non-employee Directors at any time and from time to time, as determined by the Board in its sole discretion, including the number of Deferred Stock Units subject to each Award and the terms and conditions of such Awards.

9.6 Terms of Deferred Stock Units .

9.6.1 Deferred Stock Unit Agreement . Deferred Stock Units granted pursuant to Section 9.5 shall be evidenced by a written Award Agreement, which shall be executed by the Non-employee Director and the Company.

9.6.2 Vesting . Unless otherwise provided in an Award Agreement, Awards of Deferred Stock Units shall vest over a period of not less than one year from the date of grant, and may vest pro rata over such time. Vesting may be accelerated in limited situations such as death of the Non-employee Director and change in control of the Company.

9.6.3 Payment . Except as may be provided in an Award Agreement, Deferred Stock Unit Awards will be paid in Shares. Awards of Deferred Stock Units may be paid in a lump sum or in installments or, in accordance with procedures established by the Committee, on a deferred basis subject to the requirements of Section 409A of the Code.

9.6.4 Other Terms . Unless provided otherwise in an Award Agreement, all provisions of the Plan applicable to Restricted Stock Units not inconsistent with Section 9.5 and this Section 9.6 shall apply to Deferred Stock Units granted to Non-employee Directors.

SECTION 10

MISCELLANEOUS

10.1 No Effect on Employment or Service . Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment or service at any time, with or without cause. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Affiliates (or between Affiliates) shall not be deemed a Termination of Service. Employment with the Company and its Affiliates is on an at-will basis only.

10.2 Participation . No Employee or Consultant shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.

10.3 Indemnification . Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from (a) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any Award Agreement, and (b) from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.

10.4 Successors . All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company.

10.5 Beneficiary Designations . If permitted by the Committee, a Participant under the Plan may name a beneficiary or beneficiaries to whom any vested but unpaid Award shall be paid in the event of the Participant’s death. Each such designation shall revoke all prior designations by the Participant and shall be effective only if given in a form and manner acceptable to the Committee. In the absence of any such designation, any vested benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate and, subject to the terms of the Plan and of the applicable Award Agreement, any unexercised vested Award may be exercised by the administrator or executor of the Participant’s estate.

10.6 Nontransferability of Awards . Except as provided below, no Award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will, by the laws of descent and distribution, or to the limited extent provided in Section 10.5. All rights with respect to an Award granted to a Participant shall be available during his or her lifetime only to the Participant. Notwithstanding the foregoing, the Committee, or the Board in the case of Awards to Non-Employee Directors, may, in its sole discretion, permit the transfer of an Award to an individual or entity other than the Company (each transferee thereof a “Permitted Assignee”), subject to such restrictions as the Committee, or the Board, in its sole discretion may impose.

10.7 No Rights as Stockholder . Except to the limited extent provided in Sections 7.6 and 7.7, no Participant (nor any beneficiary) shall have any of the rights or privileges of a stockholder of the Company with respect to any Shares issuable pursuant to an Award (or exercise thereof), unless and until certificates representing such Shares shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Participant (or beneficiary).

10.8 Withholding Requirements . Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof), the Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof). Notwithstanding any contrary provision of the Plan, if a Participant fails to remit to the Company such withholding amount within the time period specified by the Committee (in its discretion), the Participant’s Award may, in the Committee’s discretion, be forfeited and in such case the Participant shall not receive any of the Shares subject to such Award.

10.9 Withholding Arrangements . The Committee, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit or require a Participant to satisfy all or part of the minimum required tax withholding obligations in connection with an Award by (a) having the Company withhold otherwise deliverable Shares, or (b) delivering to the Company already-owned Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld or delivered shall be determined as of the date that the taxes are required to be withheld.

10.10 Deferrals . The Committee, in its sole discretion, may permit a Participant to defer receipt of the payment of cash or the delivery of Shares that would otherwise be delivered to a Participant under the Plan. Any such deferral elections shall be subject to such rules and procedures as shall be determined by the Committee in its sole discretion. Notwithstanding the foregoing, any deferral under this Section 10.10 shall be made in accordance with the provisions of section 409A of the Code and the applicable guidance issued by the Secretary of the Treasury thereunder.

10.11 Dividend Equivalents . Subject to the provisions of the Plan and any Award Agreement, the recipient of an Award (including, without limitation, any deferred Award) may, if so determined by the Committee, or the Board in the case of Awards to Non-Employee Directors, be entitled to receive, currently or on a deferred basis, cash or stock dividends, or cash payments in amounts equivalent to cash or stock dividends on Shares (“dividend equivalents”) with respect to the number of Shares covered by the Award, as determined by the Committee, or the Board in the case of Non-Employee Directors, in its sole discretion, and the Committee or Board may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested.

10.12 Prohibition on Repricings . Options and SARs may not be repriced without the approval of the Company’s stockholders. For this purpose, “reprice” means that that the Company has: (a) lowered or reduced the Exercise Price of outstanding Options and/or outstanding SARs after they have been granted, (b) canceled an Option and/or a SAR when the applicable Exercise Price exceeds the Fair Market Value of the underlying Shares in exchange for cash or another Award and (c) taken any other action with respect to an Option and/or a SAR that would be treated as a repricing under the rules and regulations of the principal securities market on which the Shares are traded. An adjustment pursuant to Section 4.3 shall not be treated as a repricing.

10.13 Maximum Term of Options and SARs . Notwithstanding anything in Sections 5, 6 and 9 to the contrary, no Option or SAR granted after February 15, 2007 shall have a term that exceeds seven (7) years from the Grant Date.

10.14 Restatement of Financial Results . Notwithstanding anything to the contrary set forth in the Plan or any Award Agreement, in the event of a restatement of incorrect financial results, the Board will review the conduct of executive officers in relation to the restatement. If the Board determines that an executive officer has engaged in misconduct or other violations of the Company’s code of ethics in connection with the restatement, the Board would, in its discretion, take appropriate action to remedy the misconduct, including, without limitation, seeking reimbursement of any portion of performance-based or incentive compensation paid or awarded to the executive under the Plan that is greater than would have been paid or awarded if calculated based on the restated financial results, to the extent not prohibited by governing law. For this purpose, the term “executive officer” means executive officers as defined by the Securities Exchange Act of 1934, as amended. Such action by the Board would be in addition to any other actions the Board or the Company may take under the Company’s policies, as modified from time to time, or any actions imposed by law enforcement, regulators or other authorities.

SECTION 11

AMENDMENT, TERMINATION AND DURATION

11.1 Amendment, Suspension or Termination . The Board, in its sole discretion, may amend or terminate the Plan, or any part thereof, at any time and for any reason. The amendment, suspension or termination of the Plan shall not, without the consent of the Participant, alter or impair any rights or obligations under any Award theretofore issued to such Participant. Any amendment shall also, to the extent required by applicable law or regulation, be subject to stockholder approval. No Award may be granted during any period of suspension or after termination of the Plan.

11.2 Duration of the Plan . This third amended and restated Plan shall, subject to Section 11.1 (regarding the Board’s right to amend or terminate the Plan), remain in effect for ten (10) years from the Adoption Date. Without further stockholder approval, no Incentive Stock Option may be granted under the Plan after ten (10) years from the Adoption Date.

SECTION 12

LEGAL CONSTRUCTION

12.1 Gender and Number . Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.

12.2 Severability . In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

12.3 Requirements of Law . The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

12.4 Governing Law . The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of California, but without regard to its conflict of law provisions.

12.5 Captions . Captions are provided herein for convenience only, and shall not serve as a basis for interpretation or construction of the Plan.

EXECUTION

IN WITNESS WHEREOF, Varian Medical Systems, Inc., by its duly authorized officer, has executed the Plan on the date indicated below.


				Varian Medical Systems, Inc.

Dated: February 9, 2012				By: /s/ John W. Kuo
				John W. Kuo
				Corporate Vice President, General Counsel & Secretary

Exhibit 10.2

VARIAN MEDICAL SYSTEMS, INC.

THIRD AMENDED AND RESTATED

2005 OMNIBUS STOCK PLAN

NONQUALIFIED STOCK OPTION AGREEMENT

Varian Medical Systems, Inc. (the “Company”) hereby grants the employee (“Employee”) named on the Summary of Grant Award (the “Grant Summary”), a nonqualified stock option under the Company’s Third Amended and Restated 2005 Omnibus Stock Plan (the “Plan”), to purchase shares of common stock of the Company (“Shares”) from the date of this Agreement (the “Grant Date”) and expiring on the Expiration. The maximum number of Shares purchasable pursuant to this option (“Shares Granted”), the purchase price per Share and the option expiration date (the “Expiration Date”) are stated on the Grant Summary.* However, as provided in the Terms and Conditions of 2005 Omnibus Stock Plan Nonqualified Stock Option attached hereto as Appendix A (Officers), this option may expire earlier than the Expiration Date. Subject to the provisions of Appendix A and of the Plan, the principal features of this option are as follows:


Scheduled Vesting Dates :		Number of Shares**

Date one (1) year from Grant Date		1/3 ^rd of Shares Granted
Date 13 ^th month from Grant Date through 36 ^th month from Grant date		1/36 ^th of Shares Granted

*	See “Grant Summary” page on the service provider web-site.

**	Shares vest in only whole share increments, fractions of shares vest only when they equal whole share increments.


Event Triggering Termination of Option:		Maximum Time to Exercise After Triggering Event***:

Termination of Service for cause		None
Termination of Service due to Disability		1 year
Termination of Service due to Retirement		3 years
Termination of Service due to death		3 years
All other Terminations of Service		3 months

***	However, in no event may this option be exercised after the Expiration Date.

Your acceptance online at the service provider web-site or, when provided, your signature of a copy of this Nonqualified Stock Option Agreement, indicates your agreement and understanding that this option is subject to all of the terms and conditions contained in Appendix A and the Plan. For example, important additional information on vesting and termination of this option is contained in Paragraphs 4 through 6 of Appendix A. ACCORDINGLY, PLEASE BE SURE TO READ ALL OF APPENDIX A AND THE PLAN, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS OPTION. YOU CAN REQUEST A COPY OF THE PLAN BY CONTACTING THE CORPORATE HUMAN RESOURCES OFFICE IN PALO ALTO, CALIFORNIA.

APPENDIX A

OFFICERS

TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTION

1. Grant of Option . The Company hereby grants to the Employee under the Plan, as a separate incentive in connection with his or her employment and not in lieu of any salary or other compensation for his or her services, a nonqualified stock option to purchase, on the terms and conditions set forth in this Agreement and the Plan, all or any part of an aggregate of the number of Shares Granted as specified on the “Summary of Grant Award” page of the service provider web-site.

2. Exercise Price . The purchase price per Share for this option (the “Exercise Price”) shall be the Grant Price in USD as specified on the “Summary of Grant Award” page of the service provider web-site, which is the Fair Market Value of a Share on the Grant Date.

3. Number of Shares . The number and class of Shares specified in Paragraph 1 above, and/or the Exercise Price, are subject to adjustment by the Committee in the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, Share combination or other change in the corporate structure of the Company affecting the Shares. In the event an Employee’s termination of service due to the Employee’s Retirement within one (1) year following the Grant Date, then the number of Shares Granted shall be adjusted proportionally by the time during such one (1) year period that the Employee remained an employee of the Company (based upon a 365 day year). For example, if the Employee is granted an option for 6,000 shares of Common Stock of the Company and the Employee terminated service due to the Employee’s Retirement 30 days after the Grant Date, then the Employee’s number of Shares Granted would be reduced from 6,000 shares to 493 shares (6,000 x 30/365) and the balance of the Shares Granted would be cancelled.

4. Vesting Schedule . Except as otherwise provided in this Agreement, the right to exercise this option will vest as to thirty-three and one-third percent (33-1/3%) of the Shares specified in Paragraph 1 above on the first anniversary date of the Grant Date, and as to an additional 1/36 ^th of the shares on each succeeding monthly anniversary date, until the right to exercise this option shall have vested with respect to one hundred percent (100%) of such Shares. On any scheduled vesting date, vesting actually will occur only if the Employee has been continuously employed by the Company or an Affiliate from the Grant Date until such scheduled vesting date, or the vesting date occurs within three (3) years following the Employee’s Termination of Service due to the Employee’s Retirement. Notwithstanding the foregoing, in the event of the Employee’s Termination of Service due to death, if the right to exercise any of the Shares specified in Paragraph 1 had not yet vested, then the right to exercise such Shares will vest on the date of the Employee’s Termination of Service.

5. Expiration of Option . In the event of the Employee’s Termination of Service for any reason other than Retirement, Disability, death or for cause, the Employee may, within three (3) months after the date of such Termination, or prior to the Expiration Date, whichever shall first occur, exercise any vested but unexercised portion of this option. In the event of the Employee’s Termination of Service due to Disability, the Employee may, within one (1) year after the date of such Termination, or prior to the Expiration Date, whichever shall first occur, exercise any vested but unexercised portion of this option. In the event of the Employee’s Termination of Service due to Retirement, the Employee may, within three (3) years from the date of such Termination, or prior to the Expiration Date, whichever shall first occur, exercise any vested but unexercised portion of this option. In the event of the Employee’s Termination of Service by the Company for cause (as determined by the Company), the Employee may not exercise any portion of this option that is unexercised on the date of such Termination.

6. Death of Employee . In the event that the Employee dies while in the employ of the Company and/or an Affiliate or during the three (3) month, three (3) year or one (1) year periods referred

to in Paragraph 5 above, the Employee’s designated beneficiary, or if either no beneficiary survives the Employee or the Committee does not permit beneficiary designations, the administrator or executor of the Employee’s estate, may, within three (3) years after the date of death, or prior to the Expiration Date, whichever shall first occur, exercise any vested but unexercised portion of the option. Any such transferee must furnish the Company (a) written notice of his or her status as a transferee, (b) evidence satisfactory to the Company to establish the validity of the transfer of this option and compliance with any laws or regulations pertaining to such transfer, and (c) written acceptance of the terms and conditions of this option as set forth in this Agreement.

7. Persons Eligible to Exercise Option . This option shall be exercisable during the Employee’s lifetime only by the Employee. The option shall not be transferable by the Employee, except by (a) a valid beneficiary designation made in a form and manner acceptable to the Committee, or (b) will or the applicable laws of descent and distribution.

8. Exercise of Option . This option may be exercised by the person then entitled to do so as to any Shares which may then be purchased (a) by giving written notice of exercise to the Secretary of the Company (or his or her designee), specifying the number of full Shares to be purchased and accompanied by full payment of the Exercise Price (and the amount of any income or other taxes the Company determines is required to be withheld by reason of such exercise), and (b) by giving satisfactory assurances in writing if requested by the Company, signed by the person exercising the option, that the Shares to be purchased upon such exercise are being purchased for investment and not with a view to the distribution thereof. In the absolute discretion of the Committee, the person entitled to exercise the option may elect to satisfy the tax-withholding requirement described in subparagraph (a) above by having the Company withhold Shares or by delivering to the Company already-owned Shares. No partial exercise of this option may be for less than ten (10) Share lots or multiples thereof.

9. Suspension of Exercisability . If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of the Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority, is necessary or desirable as a condition of the purchase of Shares hereunder, this option may not be exercised, in whole or in part, unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. The Company shall make reasonable efforts to meet the requirements of any such state or federal law or securities exchange and to obtain any such consent or approval of any such governmental authority.

10. No Rights of Stockholder . Neither the Employee (nor any beneficiary) shall be or have any of the rights or privileges of a stockholder of the Company in respect of any of the Shares issuable pursuant to the exercise of this option, unless and until certificates representing such Shares shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Employee (or beneficiary).

11. No Effect on Service . The Employee’s employment with the Company and its Affiliates is on an at-will basis only. Accordingly, subject to any written, express employment with the Employee, nothing in this Agreement or the Plan shall confer upon the Employee any right to continue to be employed by the Company or any Affiliate or shall interfere with or restrict in any way the rights of the Company or the Affiliate, which are hereby expressly reserved, to terminate the employment of the Employee at any time for any reason whatsoever, with or without good cause. Such reservation of rights can be modified only in an express written contract executed by a duly authorized officer of the Company or the Affiliate employing or otherwise engaging the Employee. For purposes of this Agreement, the transfer of the employment of the Employee between the Company and any one of its Affiliates (or between Affiliates) shall not be deemed a Termination of Service. Nothing herein contained shall affect the Employee’s right to participate in and receive benefits under and in accordance with the then current provisions of any pension, insurance or other employee welfare plan or program of the Company or any Affiliate.

12. Address for Notices . Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company, in care of its Secretary, at 3100 Hansen Way, Palo Alto, California 94304, or at such other address as the Company may hereafter designate in writing.

13. Option is Not Transferable . Except as otherwise expressly provided herein, this option and the rights and privileges conferred hereby may not be transferred, pledged, assigned or otherwise hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, pledge, assign, hypothecate or otherwise dispose of this option, or of any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this option and the rights and privileges conferred hereby immediately shall become null and void.

14. Maximum Term of Option . Notwithstanding any other provision of this Agreement, this option is not exercisable after the Expiration Date.

15. Binding Agreement . Subject to the limitation on the transferability of this option contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

16. Conditions to Exercise . The Exercise Price for this option must be paid in the legal tender of the United States (including, in the Committee’s sole discretion, by means of a broker-assisted cashless exercise) or, in the Committee’s sole discretion, in Shares of equivalent value. Exercise of this option will not be permitted until satisfactory arrangements have been made for the payment of the appropriate amount of withholding taxes (as determined by the Company). If the Employee fails to remit to the Company such withholding amount within the time period specified by the Committee (in its discretion), the award may be forfeited and in such case the Employee shall not receive any of the Shares subject to this Agreement.

17. Plan Governs . This Agreement is subject to all of the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan shall govern. Capitalized terms and phrases used and not defined in this Agreement shall have the meaning set forth in the Plan.

18. Committee Authority . The Committee shall have all discretion, power, and authority to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Employee, the Company and all other interested persons, and shall be given the maximum deference permitted by law. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

19. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to its principles of conflicts of law.

20. Captions . The captions provided herein are for convenience only and are not to serve as a basis for the interpretation or construction of this Agreement.

21. Agreement Severable . In the event that any provision in this Agreement shall be held invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on, the remaining provisions of this Agreement.

22. Retirement Definition and Fortifier. For purposes of this Agreement, Retirement shall mean an employee’s voluntary termination of employment at age 65 or above, or at age 55 with a minimum of 10 years employment with the Company, provided, however, that in the event employee commences employment with a company which competes with the Company in any of Company’s business, including but not limited to, equipment, software or other products for the treatment of cancer, X-ray tubes, flat panel imaging devices and industrial X-ray imaging devices, Company may, in its sole discretion, terminate this Agreement, including the vesting of any options or other grants which remain unvested as of the date employee commences employment with the competitive company.

23. Modifications to the Agreement . This Agreement constitutes the entire understanding of the parties on the subjects covered. The Employee expressly warrants that he or she is not executing this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company.

Exhibit 10.3

VARIAN MEDICAL SYSTEMS, INC.

THIRD AMENDED AND RESTATED

2005 OMNIBUS STOCK PLAN

NON-EMPLOYEE DIRECTOR

NONQUALIFIED STOCK OPTION AGREEMENT

Varian Medical Systems, Inc. (the “Company”) hereby grants you, «FNAME» «LNAME» (the “Director”), a nonqualified stock option under the Company’s Third Amended and Restated 2005 Omnibus Stock Plan (the “Plan”), to purchase shares of common stock of the Company (“Shares”)*. The date of this Agreement is «GrantDate» (the “Grant Date”)*. In general, the latest date this option will expire is «ExpirationDate» (the “Expiration Date”) as stated on the Grant Summary*. However, as provided in the attached Non-Employee Director, Terms and Conditions of Nonqualified Stock Option (“Appendix A”), this option may expire earlier than the Expiration Date. Subject to the provisions of Appendix A and of the Plan, the principal features of this option are as follows:


Maximum Number of Shares Purchasable with this Option: «Shares»	Purchase Price per share:	$«GrantPrice»

Scheduled Vesting Date:	Number of Shares ** :

«GrantDate»	«Shares»

*	See “Grant Summary” page on the service provider web-site.

**	Shares vest in whole share increments; fractions of shares vest only when they equal whole share increments.


Event Triggering Termination of Option:		Maximum Time to Exercise After Triggering Event***:

Termination of Service due to Disability		3 years
Termination of Service due to Retirement		3 years
Termination of Service due to death		3 years
Termination of Service due to completion of term as Director		3 years
All other Terminations of Service		3 months

***	However, in no event may this option be exercised after the Expiration Date (except in certain cases of the death of the Director).

Your acceptance online at the service provider web-site or, when provided, your signature on a copy of this Nonqualified Stock Option Agreement, indicates your agreement and understanding that this option is subject to all of the terms and conditions contained in Appendix A and the Plan. For example, important additional information on vesting and termination of this option is contained in Paragraphs 4 through 6 of Appendix A. ACCORDINGLY, PLEASE BE SURE TO READ ALL OF APPENDIX A AND THE PLAN, WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THIS OPTION. YOU CAN REQUEST A COPY OF THE PLAN BY CONTACTING THE CORPORATE HUMAN RESOURCES OFFICE IN PALO ALTO, CALIFORNIA.

Exhibit 10.3

APPENDIX A

Non-Employee Director

TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTION

1. Grant of Option . The Company hereby grants to the Director under the Plan, as a separate incentive in connection with his or her service and not in lieu of any other compensation for his or her services, a nonqualified stock option to purchase, on the terms and conditions set forth in this Agreement and the Plan, all or any part of an aggregate of Shares Granted as specified on the “Grant Summary” page of the service provider web-site. This option is not intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

3. Number of Shares . The number and class of Shares specified in Paragraph 1 above, and/or the Exercise Price, are subject to adjustment by the Board of Directors of the Company (the “Board”) in the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, Share combination or other change in the corporate structure of the Company affecting the Shares.

4. Vesting Schedule . The right to exercise this option is scheduled to vest fully as of the Grant Date.

5. Expiration of Option . In the event of the Director’s Termination of Service for any reason other than Disability, Retirement, completion of term as a Director or death, the Director may, within three (3) months after the date of such Termination, or prior to the Expiration Date, whichever shall first occur, exercise this option. In the event of the Director’s Termination of Service due to Disability, or completion of term as a Director, Retirement, the Director may, within three (3) years after the date of such Termination, or prior to the Expiration Date, whichever shall first occur, exercise this option.

6. Death of Director . In the event that the Director dies while in the employ of the Company or during the three (3) month or three (3) year periods referred to in Paragraph 5 above, the Director’s designated beneficiary, or if either no beneficiary survives the Director or the Board does not permit beneficiary designations, the administrator or executor of the Director’s estate, may, within three (3) years after the date of death, or prior to the Expiration Date, whichever shall first occur, exercise this option. Any such transferee must furnish the Company (a) written notice of his or her status as a transferee, (b) evidence satisfactory to the Company to establish the validity of the transfer of this option and compliance with any laws or regulations pertaining to such transfer, and (c) written acceptance of the terms and conditions of this option as set forth in this Agreement.

7. Persons Eligible to Exercise Option . This option shall be exercisable during the Director’s lifetime only by the Director. The option shall not be transferable by the Director, except by (a) a valid beneficiary designation made in a form and manner acceptable to the Board, or (b) will or the applicable laws of descent and distribution.

8. Exercise of Option . This option may be exercised by the person then entitled to do so as to any Shares which may then be purchased (a) by giving written notice of exercise to the Secretary of the Company (or his or her designee), specifying the number of full Shares to be purchased and accompanied by full payment of the Exercise Price (and the amount of any income or other taxes the Company determines is required to be withheld by reason of such exercise), and (b) by giving satisfactory assurances in writing if requested by the Company, signed by the person exercising the option, that the Shares to be purchased upon such exercise are being purchased for investment and not with a view to the distribution thereof. In the absolute discretion of the Board, the person entitled to exercise the option may elect to satisfy the tax withholding requirement described in subparagraph (a) above by having the Company withhold Shares or delivering to the Company already-owned Shares. No partial exercise of this option may be for less than ten (10) Share lots or multiples thereof.

10. No Rights of Stockholder . Neither the Director (nor any beneficiary) shall be or have any of the rights or privileges of a stockholder of the Company in respect of any of the Shares issuable pursuant to the exercise of this option, unless and until certificates representing such Shares shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Director (or beneficiary).

11. No Effect on Service . Nothing in this Agreement or the Plan shall confer upon the Director any right to continue service on the Board of the Company or its Subsidiaries (as the case may be).

12. Address for Notices . Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company, in care of its Secretary at 3100 Hansen Way, Palo Alto, California 94304, or at such other address as the Company may hereafter designate in writing.

14. Maximum Term of Option . Notwithstanding any other provision of this Agreement, this option is not exercisable after the Expiration Date.

16. Conditions to Exercise . The Exercise Price for this option must be paid in the legal tender of the United States (including, in the Board’s sole discretion, by means of a broker-assisted cashless exercise) or, in the Board’s sole discretion, in Shares of equivalent value that (a) were previously issued to the Director and (b) have been held by the Director for at least six (6) months prior thereto. Exercise of this option will not be permitted until satisfactory arrangements have been made for the payment of the appropriate amount of withholding taxes (as determined by the Company). If the Director fails to remit to the Company such withholding amount within the time period specified by the Board (in its discretion), the award may be forfeited and in such case the Director shall not receive any of the Shares subject to this Agreement.

18. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to its principles of conflicts of law.

19. Board Authority . The Board shall have all discretion, power, and authority to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon the Director, the Company and all other interested persons, and shall be given the maximum deference permitted by law. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

20. Captions . The captions provided herein are for convenience only and are not to serve as a basis for the interpretation or construction of this Agreement.

22. Modifications to the Agreement . This Agreement constitutes the entire understanding of the parties on the subjects covered. The Director expressly warrants that he or she is not executing this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company.

Exhibit 10.4

For use in Singapore

VARIAN MEDICAL SYSTEMS, INC.

THIRD AMENDED AND RESTATED

2005 OMNIBUS STOCK PLAN

NON-EMPLOYEE DIRECTOR

NONQUALIFIED STOCK OPTION AGREEMENT


Maximum Number of Shares Purchasable with this Option: «Shares»	Purchase Price per share:	$«GrantPrice»

Scheduled Vesting Date:	Number of Shares ** :

«GrantDate»	«Shares»

*	See “Grant Summary” page on the service provider web-site.

**	Shares vest in whole share increments; fractions of shares vest only when they equal whole share increments.


Event Triggering Termination of Option:		Maximum Time to Exercise After Triggering Event***:

Termination of Service due to Disability		3 years
Termination of Service due to Retirement		3 years
Termination of Service due to death		3 years
Termination of Service due to completion of term as Director		3 years
All other Terminations of Service		3 months

***	However, in no event may this option be exercised after the Expiration Date (except in certain cases of the death of the Director).

Exhibit 10.4

For use in Singapore

APPENDIX A

Non-Employee Director

TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTION

4. Vesting Schedule . The right to exercise this option is scheduled to vest fully as of the Grant Date.

8. Exercise of Option . This option may be exercised by the person then entitled to do so as to any Shares which may then be purchased (a) by giving written notice of exercise to the Secretary of the Company (or his or her designee), specifying the number of full Shares to be purchased and accompanied by full payment of the Exercise Price (and the amount of any income or other taxes the Company determines is required to be withheld by reason of such exercise), and (b) by giving satisfactory assurances in writing if requested by the Company, signed by the person exercising the option, that the Shares to be purchased upon such exercise are being purchased for investment and not with a view to the distribution thereof. In the absolute discretion of the Board, the person entitled to exercise the option may elect to satisfy the tax withholding requirement described in subparagraph (a) above by having the Company withhold Shares or delivering to the Company already-owned Shares. No partial exercise of this option may be for less than ten (10) Share lots or multiples thereof.

11. Service Acknowledgments . Nothing in this Agreement or the Plan shall confer upon the Director any right to continue service on the Board of the Company or its Subsidiaries (as the case may be). In addition, the Director acknowledges and agrees to the following:

(a) The Plan is discretionary in nature and the Company may amend, suspend, or terminate it at any time;

(b) The grant of this option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of the option even if the option has been granted repeatedly in the past;

(c) All determinations with respect to such future options, if any, including but not limited to, the times when the options shall be granted or when the options shall vest, will be at the sole discretion of the Board;

(d) The Director’s participation in the Plan is voluntary;

(e) The value of this option is an extraordinary item of compensation, which is outside the scope of the Director’s service contract (if any), except as may otherwise be explicitly provided in the Director’s service contract (if any);

(f) This option is not part of normal or expected compensation for any purpose, including, but not limited to, calculating termination, severance, resignation, redundancy, end of service, or similar payments, or bonuses, long-service awards, pension or retirement benefits;

(g) The future value of the Shares is unknown and cannot be predicted with certainty;

(h) No claim or entitlement to compensation or damages arises from the termination of the Option or diminution in value of the Option or Shares and the Director irrevocably release the Company and its Subsidiaries from any such claim that may arise.

(i) Neither the Plan nor this option shall be construed to create an employment or service relationship where any such relationship did not otherwise already exist.

14. Maximum Term of Option . Notwithstanding any other provision of this Agreement, this option is not exercisable after the Expiration Date.

17. Tax Liability. The Company and any of its Subsidiaries shall assess tax and social insurance contribution liability and requirements in connection with the Director’s participation in the Plan, including, without limitation, tax liability and social insurance contribution liability associated with the grant or exercise of the option or sale of the underlying Shares (the “Tax Liability”). These requirements may change from time to time as laws or

interpretations change. Regardless of the Company’s or any Subsidiary’s actions in this regard, the Director hereby acknowledges and agrees that the Tax Liability shall be the Director’s ultimate responsibility and liability. The Director agrees as a condition of his or her participation in the Plan to make arrangements satisfactory to the Company and its Subsidiary to enable it to satisfy any withholding, payment and/or collection requirements associated with the satisfaction of the Tax Liability, including authorizing the Company or the Subsidiary to: (i) withhold all applicable amounts from the Director’s wages or other cash compensation due to the Director, in accordance with any requirements under the laws, rules, and regulations of the country of which the Director is a resident, and (ii) act as the Director’s agent to sell sufficient Shares for the proceeds to settle such requirements. Furthermore, the Director agrees to pay the Company or the Subsidiary any amount the Company or any Subsidiary may be required to withhold, collect or pay as a result of the Director’s participation in the Plan or that cannot be satisfied by deduction from the Director ‘s wages or other cash compensation paid to the Director by the Company or the Subsidiary or sale of the Shares acquired under the Plan. The Director acknowledges that he or she may not participate in the Plan and the Company and the Subsidiary shall have no obligation to deliver Shares until the Tax Liability has been satisfied by the Director.

18. Data Protection . The Director hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data by and among, as applicable, the Company and any Subsidiary for the exclusive purpose of implementing, administering and managing the Director’s participation in the Plan. The Director understands that the Company and its Subsidiaries may hold certain personal information about the Director including, but not limited to, the Director’s name, home address and telephone number, date of birth, social security number (or any other social or national identification number), salary, nationality, job title, number of Shares held and the details of the Option or any other entitlement to Shares awarded, cancelled, vested, unvested or outstanding for the purpose of implementing, administering and managing the Director’s participation in the Plan (the “Data”). The Director understands that the Data may be transferred to the Company or any Subsidiaries, or to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Director’s country or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than the Director’s country. The Director understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting the Company. The Director authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan, including any requisite transfer of such Data to a broker or other third party assisting with the administration of the option under the Plan or with whom Shares acquired pursuant to the exercise of the option or cash from the sale of such Shares may be deposited. Furthermore, the Director acknowledges and understands that the transfer of the Data to the Company or Subsidiaries or to any third parties is necessary for his or her participation in the Plan. The Director understands that Data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan. The Director understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein by contacting the Company in writing. The Director further acknowledges that withdrawal of consent may affect his or her ability to vest in, exercise or realize benefits from the option, and his or her ability to participate in the Plan. For more information on the consequences of refusal to consent or withdrawal of consent, the Director understands that he or she may contact the Company.

19. Plan Governs . This Agreement is subject to all of the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan shall govern. Capitalized terms and phrases used and not defined in this Agreement shall have the meaning set forth in the Plan.

20. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to its principles of conflicts of law.

21. Compliance with Laws and Regulations . The Director understands that the grant, vesting and exercise of this option under the Plan and the issuance, transfer, assignment, sale, or other dealings of the Shares shall be subject to compliance by the Company (and its Subsidiaries) and the Director with all applicable laws, rules, and regulations. Furthermore, the Director agrees that he or she will not acquire Shares pursuant to the Plan except in compliance with all applicable laws, rules and regulations.

22. Board Authority . The Board shall have all discretion, power, and authority to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon the Director, the Company and all other interested persons, and shall be given the maximum deference permitted by law. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

23. Captions . The captions provided herein are for convenience only and are not to serve as a basis for the interpretation or construction of this Agreement.

24. Agreement Severable . In the event that any provision in this Agreement shall be held invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on, the remaining provisions of this Agreement.

25. Modifications to the Agreement . This Agreement constitutes the entire understanding of the parties on the subjects covered. The Director expressly warrants that he or she is not executing this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company.

26. Electronic Delivery and Execution . The Company may, in its sole discretion, decide to deliver any documents related to options awarded under the Plan or future options that may be awarded under the Plan by electronic means or request Director’s consent to participate in the Plan by electronic means. The Director hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. Electronic execution of this Agreement and/or other documents shall have the same binding effect as a written or hard copy signature and accordingly, shall bind the Director and the Company to all of the terms and conditions set forth in the Plan, this Agreement and/or such other documents.

Exhibit 10.5

(For Use Inside the U.S.)

VARIAN MEDICAL SYSTEMS, INC.

Third Amended and Restated 2005 Omnibus Stock Plan

RESTRICTED STOCK UNIT AGREEMENT

Varian Medical Systems, Inc. (the “Company”) hereby awards to the designated employee (“Employee”), Restricted Stock Units under the Company’s Third Amended and Restated 2005 Omnibus Stock Plan (the “Plan”). The Restricted Stock Units awarded under this Restricted Stock Unit Agreement (the “Agreement”) consist of the right to receive shares of common stock of the Company (“Shares”). The Grant Date is the date of this Agreement (the “Grant Date”). Subject to the provisions of Appendix A of this Agreement (“Appendix A”) (attached) and of the Plan, the principal features of this award are as follows:


Total Number of Restricted Stock Units :		[NUMBER A]

Scheduled Vesting Dates:		Number of Restricted Stock Units

[[FEBRUARY 15 ^th /MAY 18 ^th /AUGUST 10 ^th /NOVEMBER 21 ^st ]1 YEAR FROM GRANT DATE]		[33-1/3% of NUMBER A]
[[FEBRUARY 15 ^th /MAY 18 ^th /AUGUST 10 ^th /NOVEMBER 21 ^st ] 2 YEARS FROM GRANT DATE]		[33-1/3% of NUMBER A]
[[FEBRUARY 15 ^th /MAY 18 ^th /AUGUST 10 ^th /NOVEMBER 21 ^st ]3 YEARS FROM GRANT DATE]		[33-1/3% of NUMBER A]

Your signature below indicates your agreement and understanding that this award is subject to all of the terms and conditions contained in Appendix A and the Plan. For example, important additional information on vesting and forfeiture of the Restricted Stock Units covered by this award is contained in Paragraphs 2 through 4 of Appendix A. PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS AGREEMENT. YOU CAN REQUEST A COPY OF THE PLAN BY CONTACTING THE CORPORATE HUMAN RESOURCES OFFICE IN PALO ALTO, CALIFORNIA. TO THE EXTENT ANY CAPITALIZED TERMS USED IN APPENDIX A ARE NOT DEFINED HEREIN, THEY WILL HAVE THE MEANING ASCRIBED TO THEM IN THE PLAN.

A-2

Exhibit 10.5

(For Use Inside the U.S.)

APPENDIX A

TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS

1. Award . The Company hereby awards to the Employee under the Plan as a separate incentive in connection with his or her employment, and not in lieu of any salary or other compensation for his or her services, an award of [NUMBER A] Restricted Stock Units on the date hereof, subject to all of the terms and conditions in this Agreement and the Plan.

2. Vesting Schedule . Except as provided in Paragraphs 3 and 5, the Restricted Stock Units subject to this Agreement shall vest in the Employee, as to thirty-three and one-third percent (33-1/3%) of the Shares covered by this Award on [February 15 ^th /May 18 ^th /August 10 ^th /November 21 ^st ] of the year following the year this Award is granted, and as to an additional thirty-three and one-third percent (33-1/3%) on each succeeding one-year anniversary of the first vesting date (each date, a “Vesting Date”), until one hundred percent (100%) of such Restricted Stock Units shall have been vested. Restricted Stock Units shall not vest in the Employee in accordance with any of the provisions of Paragraph 2 unless the Employee (a) shall have been continuously employed by the Company or by one of its Affiliates from the Grant Date until each Vesting Date or (b) shall have had a Termination of Service due to Retirement (in which case, vesting shall continue to occur on the scheduled Vesting Dates); provided, however, that if the Employee’s Termination of Service due to the Employee’s Retirement occurs within one (1) year following the Grant Date, then the number of Restricted Stock Units subject to this Agreement shall be adjusted proportionally by the time during such one (1) year period that the Employee remained an employee of the Company (based upon a 365 day year). For example, if the Employee is granted 6,000 Restricted Stock Units and the Employee Terminated Service due to the Employee’s Retirement 30 days after the Grant Date, then the Employee’s number of Restricted Stock Units would be reduced from 6,000 shares to 493 shares (6,000 x 30/365) and the balance of the Restricted Stock Units would be cancelled.

3. Committee Discretion . The Committee, in its absolute discretion, may accelerate the vesting (but not the settlement timing) of the balance, or some lesser portion of the balance, of the unvested Restricted Stock Units at any time. If so accelerated, such Restricted Stock Units shall be considered as having vested as of the date specified by the Committee.

4. Forfeiture . Except as provided in Paragraphs 2, 3 and 5 and notwithstanding any contrary provision of this Agreement, the balance of the Restricted Stock Units which have not vested at the time of the Employee’s Termination of Service shall thereupon be forfeited.

5. Death of Employee . In the event of the Employee’s death prior to Employee’s Termination of Service, each Vesting Date of the Restricted Stock Units subject to this Agreement shall fully accelerate and all of the Restricted Stock Units subject to this Agreement shall be settled at the time of Employee’s death. Any distribution or delivery to be made to the Employee under this Agreement shall, if the Employee is then deceased, be made to the Employee’s designated beneficiary, or if either no beneficiary survives the Employee or the Committee does not permit beneficiary designations, to the administrator or executor of the Employee’s estate. Any designation of a beneficiary by the Employee shall be effective only if such designation is made in a form and manner acceptable to the Committee. Any transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.

A-1

6. Settlement of Restricted Stock Units .

(a) Status as a Creditor . Unless and until Restricted Stock Units have vested in accordance with Paragraph 2, 3 or 5 above, the Employee will have no settlement right with respect to any Restricted Stock Units. Prior to settlement of any vested Restricted Stock Units, the vested Restricted Stock Units will represent an unfunded and unsecured obligation of the Company, payable (if at all) only from the general assets of the Company. The Employee is an unsecured general creditor of the Company, and settlement of Restricted Stock Units is subject to the claims of the Company’s creditors.

(b) Form and Timing of Settlement . Restricted Stock Units will automatically be settled in the form of Shares upon the applicable vesting of the Restricted Stock Units pursuant to Paragraph 2 or 5 above. Fractional Shares will not be issued upon the vesting of Restricted Stock Units. Where a fractional Share would be owed to the Employee upon the vesting of Restricted Stock Units, a cash payment equivalent will be paid in place of any such fractional Share using the Fair Market Value on the relevant settlement date.

7. Tax Liability and Withholding . The Company or one if its Affiliates shall assess applicable tax liability and requirements in connection with the Employee’s participation in the Plan, including, without limitation, tax liability associated with the grant or vesting of the Restricted Stock Units or sale of the underlying shares (the “Tax Liability”). These requirements may change from time to time as laws or interpretations change. Regardless of the Company’s or the Affiliate’s actions in this regard, the Employee hereby acknowledges and agrees that the Tax Liability shall be the Employee’s responsibility and liability. The Employee acknowledges that the Company’s obligation to issue or deliver Shares shall be subject to satisfaction of the Tax Liability. Unless otherwise determined by the Company, Tax Liability shall be satisfied by the Company’s withholding all or a portion of any Shares that otherwise would be issued to the Employee upon settlement of the vested Restricted Stock Units; provided that amounts withheld shall not exceed the amount necessary to satisfy the Company’s tax withholding obligations (minimum tax withholding obligations if necessary to avoid adverse accounting consequences). Such withheld Shares shall be valued based on the Fair Market Value as of the date the withholding obligations are satisfied. The Company or one if its Affiliates may, at their discretion, use other methods to satisfy the Tax Liability. Furthermore, the Employee agrees to pay the Company or the Affiliate any Tax Liability that cannot be satisfied by the foregoing methods.

8. Rights as Stockholder . Neither the Employee nor any person claiming under or through the Employee shall have any of the rights or privileges of a stockholder of the Company in respect of any Restricted Stock Units (whether vested or unvested) unless and until such Restricted Stock Units are settled in Shares and certificates representing such Shares shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Employee. After such issuance, recordation and delivery, the Employee shall have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares. This Agreement does not provide for dividend equivalents.

A-2

9. Acknowledgments . The Employee acknowledges and agrees to the following:

•

The Plan is discretionary in nature and the Committee may amend, suspend, or terminate it at any time;

•

The grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of Restricted Stock Units, or benefits in lieu of the Restricted Stock Units even if the Restricted Stock Units have been granted repeatedly in the past;

•

All determinations with respect to such future Restricted Stock Units, if any, including but not limited to, the times when the Restricted Stock Units shall be granted or when the Restricted Stock Units shall vest, will be at the sole discretion of the Committee;

•

The Employee’s participation in the Plan is voluntary;

•

The value of the Restricted Stock Units is an extraordinary item of compensation , which is outside the scope of the Employee’s employment contract (if any), except as may otherwise be explicitly provided in the Employee’s employment contract (if any);

•

The Restricted Stock Units are not part of normal or expected compensation or salary for any purpose, including, but not limited to, calculating termination, severance, resignation, redundancy, end of service, or similar payments, or bonuses, long-service awards, pension or retirement benefits;

•

The future value of the Shares is unknown and cannot be predicted with certainty;

•

No claim or entitlement to compensation or damages arises from the termination of the Award or diminution in value of the Restricted Stock Units or Shares, and the Employee irrevocably releases the Company and its Affiliates from any such claim that may arise;

•

Neither the Plan nor the Restricted Stock Units shall be construed to create an employment relationship where any employment relationship did not otherwise already exist;

•

Nothing in this Agreement or the Plan shall confer upon the Employee any right to continue to be employed by the Company or any Affiliate or shall interfere with or restrict in any way the rights of the Company or the Affiliate, which are hereby expressly reserved, to terminate the employment of the Employee under applicable law;

•

The transfer of employment of the Employee between the Company and any one of its Affiliates (or between Affiliates) shall not be deemed a Termination of Service;

•

Nothing herein contained shall affect the Employee’s right to participate in and receive benefits under and in accordance with the then current provisions of any pension, insurance or other employee welfare plan or program of the Company or any Affiliate.

10. Changes in Stock . In the event that as a result of a stock dividend, stock split, reclassification, recapitalization, combination of Shares or the adjustment in capital stock of the Company or otherwise, or as a result of a merger, consolidation, spin-off or other reorganization, the Company’s common stock shall be increased, reduced or otherwise changed, the Restricted Stock Units shall, subject to Section 409A of the Code, be properly adjusted.

A-3

11. Address for Notices . Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company, in care of its Secretary, at 3100 Hansen Way, Palo Alto, California 94304, or at such other address as the Company may hereafter designate in writing.

12. Restrictions on Transfer . Except as provided in Paragraph 5 above, this award and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this award, or of any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this award and the rights and privileges conferred hereby immediately shall become null and void. Regardless of whether the transfer or issuance of the Shares to be issued pursuant to this Agreement has been registered under the Securities Act of 1933, as amended (the “1933 Act”) or has been registered or qualified under the securities laws of any state, the Company may impose additional restrictions upon the sale, pledge, or other transfer of the Shares (including the placement of appropriate legends on stock certificates and the issuance of stop-transfer instructions to the Company’s transfer agent) if, in the judgment of the Company and the Company’s counsel, such restrictions are necessary in order to achieve compliance with the provisions of the 1933 Act, the securities laws of any state, or any other law. Stock certificates evidencing the Shares issued pursuant to this Agreement, if any, may bear such restrictive legends as the Company and the Company’s counsel deem necessary under applicable laws or pursuant to this Agreement.

13. Binding Agreement . Subject to the limitation on the transferability of this award contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

14. Conditions for Issuance of Certificates for Stock . The Shares deliverable to the Employee upon settlement of vested Restricted Stock Units may be either previously authorized but unissued Shares or issued Shares which have been reacquired by the Company. The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; (c) the approval or other clearance from any state or federal governmental regulatory body, which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the Vesting Date as the Committee may establish from time to time for reasons of administrative convenience.

15. Plan Governs . This Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan shall govern.

16. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to its principles of conflicts of law.

17. Committee Authority . The Committee shall have the power to interpret the Plan and this Agreement, and to adopt such rules for the administration, interpretation and

A-4

application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Employee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.

18. Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

19. Severability . In the event that any provision in this Agreement shall be held invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on, the remaining provisions of this Agreement.

20. Modifications to the Agreement . This Agreement constitutes the entire understanding of the parties on the subjects covered. The Employee expressly warrants that he or she is not executing this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company.

21. Amendment, Suspension or Termination of the Plan . By accepting this award, the Employee expressly warrants that he or she has received a right to an equity based award under the Plan, and has received, read, and understood a description of the Plan. The Employee understands that the Plan is discretionary in nature and may be modified, suspended, or terminated by the Company at any time.

22 . Authorization to Release and Transfer Necessary Personal Information. The Employee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data by and among, as applicable, the Company and the Affiliates for the exclusive purpose of implementing, administering and managing the Employee’s participation in the Plan. The Employee understands that the Company and the Affiliates may hold certain personal information about the Employee including, but not limited to, the Employee’s name, home address and telephone number, date of birth, social security number (or any other social or national identification number), salary, nationality, job title, number of Shares held and the details of all Restricted Stock Units or any other entitlement to Shares awarded, cancelled, vested, unvested or outstanding for the purpose of implementing, administering and managing the Employee’s participation in the Plan (the “Data”). The Employee understands that the Data may be transferred to the Company or any of the Affiliates, or to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Employee’s country or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Employee’s country. The Employee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Employee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan, including any requisite transfer of such Data to a broker or other third party assisting with the administration of Restricted Stock Units under the Plan or with whom Shares acquired pursuant to the vesting of the Restricted Stock Units or cash from the sale of such Shares may be deposited. Furthermore, the Employee acknowledges and understands that the transfer of the Data to the Company or the Affiliates or to any third parties is necessary for his or her participation in the Plan. The Employee understands

A-5

that Data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan. The Employee understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein by contacting his or her local human resources representative in writing. The Employee further acknowledges that withdrawal of consent may affect his or her ability to vest in or realize benefits from the Restricted Stock Units, and his or her ability to participate in the Plan. For more information on the consequences of refusal to consent or withdrawal of consent, the Employee understands that he or she may contact his or her local human resources representative.

23. [ Electronic Delivery : By executing this Agreement Employee consents to the electronic delivery of the Plan documents and this Agreement. ]

24. [ Execution of this Agreement : Execution of this Agreement, whether in writing or electronic, shall have the same binding effect and shall fully bind Employee and the Company to all of the terms and conditions set forth in this Agreement and the Plan. ]

o 0 o

A-6

Exhibit 10.6

(For Use In the U.S.)

VARIAN MEDICAL SYSTEMS, INC.

Third Amended and Restated 2005 Omnibus Stock Plan

PERFORMANCE UNIT AGREEMENT

Varian Medical Systems, Inc. (the “Company”) hereby awards to the designated employee (“Employee”), Performance Units under the Company’s Third Amended and Restated 2005 Omnibus Stock Plan (the “Plan”). The Performance Units awarded under this Performance Unit Agreement (the “Agreement”) consist of the right to receive shares of common stock of the Company (“Shares”). The Grant Date is the date of this Agreement (the “Grant Date”). Subject to the provisions of Appendix A of this Agreement (“Appendix A”) (attached) and of the Plan, the principal features of this award are as follows:

Number of Performance Units at or Below Threshold Performance : Zero (0)

Number of Performance Units at Target Performance : (Your Target Grant)

Maximum Number of Performance Units : (Potential Maximum)

Performance Period : October 1, 2011 through September 26, 2014 (the “Performance Period”)

Performance Goals : The actual number of Shares to be earned under this award will be determined based on the performance goals set forth in Appendix B which shall be separately provided to Employee by the Company (the “Performance Goals”). Such Performance Goals and the extent to which they have been achieved will be determined by the Compensation and Management Development Committee (the “Committee”) of the Board of Directors of the Company (the “Board”), in its sole discretion. The number of Shares earned on account of performance between threshold and target or between target and maximum shall be determined in accordance with the applicable performance curve(s) set forth in Appendix B which shall be separately provided to Employee by the Company.

As provided in the Plan, this Agreement and Appendix A, this Award may terminate before the end of the Performance Period. For example, if Employee’s employment ends before the end of the Performance Period, this Award will terminate at the same time as such termination unless an exception applies as set forth in Appendix A. Important additional information on vesting and forfeiture of the Performance Units covered by this Award is contained in Paragraphs 2 through 7 of Appendix A.

Your signature below indicates your agreement and understanding that this award is subject to all of the terms and conditions contained in Appendix A and the Plan. For example, important additional information on vesting and forfeiture of the Performance Units covered by this award is contained in Paragraphs 2 through 7 of Appendix A. PLEASE BE SURE TO READ ALL OF APPENDIX A, WHICH CONTAINS THE SPECIFIC TERMS AND CONDITIONS OF THIS AGREEMENT. YOU CAN REQUEST A COPY OF THE PLAN BY CONTACTING THE CORPORATE HUMAN RESOURCES OFFICE IN PALO ALTO, CALIFORNIA. TO THE EXTENT ANY CAPITALIZED TERMS USED IN APPENDIX A ARE NOT DEFINED HEREIN, THEY WILL HAVE THE MEANING ASCRIBED TO THEM IN THE PLAN.

A-2

Exhibit 10.6

(For Use In the U.S.)

APPENDIX A

TERMS AND CONDITIONS OF PERFORMANCE UNITS

1. Award . The Company hereby awards to the Employee under the Plan as a separate incentive in connection with his or her employment, and not in lieu of any salary or other compensation for his or her services, an award of [NUMBER A] Performance Units on the date hereof, subject to all of the terms and conditions in this Agreement and the Plan.

2. Vesting . To the extent that the Performance Goals are achieved and Shares are earned (which may range from zero to [MAX NUMBER]), as determined and certified by the Committee in its sole discretion, then the earned Shares shall be paid following the end of the Performance Period no later than December 15 ^th immediately following the end of the Performance Period (the “Settlement Date”) provided that Employee shall have been continuously employed by the Company or by one of its Affiliates from the Grant Date through the last day of the Performance Period (the “Employment Requirement”). For the avoidance of doubt, in the event that the Employment Requirement is waived pursuant to Paragraph 3, 4 or 6, except as set forth in Paragraph 7, payout of the Performance Units shall continue to depend on the extent to which the Performance Goals are achieved and Shares are earned, as determined and certified by the Committee in its sole discretion.

3. Retirement If Employee was eligible for Retirement (defined as 55 years or more of age with 10 or more years of service with the Company or its Affiliates, or age 65 or older) on the Grant Date and has a Termination of Service due to Retirement on or prior to the last day of the Performance Period, Employee shall be treated for purposes of this Agreement as having been continuously employed by the Company or by one of its Affiliates through the last day of the Performance Period; provided, however, that if the Employee’s Termination of Service due to the Employee’s Retirement occurs within one (1) year following the Grant Date, then the threshold, target and maximum number of Performance Units subject to this Agreement (and potential payouts in between) shall be adjusted proportionally by the time during such one (1) year period that the Employee remained an employee of the Company (based upon a 365 day year). For example, if the Employee is granted a target number of Performance Units equal to 6,000 and the Employee Terminated Service due to the Employee’s Retirement 30 days after the Grant Date, then the Employee’s target number of Performance Units would be reduced from 6,000 shares to 493 shares (6,000 x 30/365) and the balance of the Performance Units would be cancelled. For the avoidance of doubt, except as set forth in Paragraph 7, the actual number of Shares earned with respect to such adjusted number of Performance Units shall continue to depend on the extent to which the Performance Goals are achieved and Shares are earned, as determined and certified by the Committee in its sole discretion.

If Employee was not eligible for Retirement (defined as 55 years or more of age with 10 or more years of service with the Company or its Affiliates, or age 65 or older) on the Grant Date and has a Termination of Service due to Retirement on or prior to the last day of the Performance Period, Employee shall be treated for purposes of this Agreement as having been continuously employed by the Company or by one of its Affiliates through the last day of the Performance Period; provided, however, that the threshold, target and maximum number of Performance Units subject to this Agreement (and potential payouts in between) shall be adjusted proportionally by the time during the three (3) year Performance Period that the Employee remained an employee of the Company (based upon a 365 day year). For example, if the Employee is granted a target number of Performance Units equal to 6,000 and the Employee Terminated Service due to the Employee’s Retirement 30 days after the Grant Date, then the

A-1

Employee’s target number of Performance Units would be reduced from 6,000 shares to 164 shares (6,000 x 30/1,095) and the balance of the Performance Units would be cancelled. For the avoidance of doubt, except as set forth in Paragraph 7, the actual number of Shares earned with respect to such adjusted number of Performance Units shall continue to depend on the extent to which the Performance Goals are achieved and Shares are earned, as determined and certified by the Committee in its sole discretion.

4. Committee Discretion . The Committee, in its absolute discretion, may waive the Employment Requirement with respect to all or any portion of the Performance Units at any time.

5. Forfeiture . Except as provided in Paragraphs 3, 4, 6 or 7(b) and notwithstanding any contrary provision of this Agreement, in the event that Employee ceases to be continuously employed by the Company or by one of its Affiliates through the last day of the Performance Period, the Performance Units shall thereupon be forfeited.

6. Death of Employee . In the event of the Employee’s death prior to Employee’s Termination of Service, Employee shall be treated for purposes of this Agreement as having been continuously employed by the Company or by one of its Affiliates through the last day of the Performance Period. Any distribution or delivery to be made to the Employee under this Agreement shall, if the Employee is then deceased, be made to the Employee’s designated beneficiary, or if either no beneficiary survives the Employee or the Committee does not permit beneficiary designations, to the administrator or executor of the Employee’s estate. Any designation of a beneficiary by the Employee shall be effective only if such designation is made in a form and manner acceptable to the Committee. Any transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.

7. Change in Control .

(a) In the event of a Change in Control (defined below) in which the Performance Units are assumed, the Performance Goals shall be deemed to be satisfied at target and the target number of Shares (as adjusted pursuant to Section 12 hereof) shall be paid to the Employee on the Settlement Date provided that Employee shall have been continuously employed by the Company or by one of its Affiliates from the Grant Date through the last day of the original Performance Period (or shall have had an earlier Termination of Service due to Retirement or death or as described in the second to last sentence of this Section 7(a)). In the event Employee shall have had an earlier Termination of Service due to Retirement, such target number of Shares shall be prorated in accordance with Paragraph 3 hereof. If Employee has entered into a Change in Control Agreement (the “CIC Agreement”) with the Company on or prior to the date of the applicable Change in Control and the Employee’s employment terminates under the circumstances described in Section 2(d) or 4(a) of the CIC Agreement, then Employee shall become vested in the target number of Shares (as adjusted pursuant to Section 12 hereof, if applicable) upon the Release Deadline (as defined in the CIC Agreement) provided that Employee shall have executed and not revoked the Release (as defined in the CIC Agreement) by the Release Deadline and such Shares shall be paid to the Employee on the Settlement Date; provided, however, that if a Change in Control is not consummated, Employee shall return to the Company any payments provided to the Employee in connection with an employment termination described in Section 2(d) of the CIC Agreement. In the event of any conflict between this Agreement and CIC Agreement, this Agreement shall control.

A-2

(b) Notwithstanding the foregoing or anything to the contrary set forth in the Plan or any other agreement or arrangement, in the event that the Performance Units are not assumed in connection with a Change in Control, the Performance Goals shall be deemed satisfied at target and the target number of Shares shall be paid to the Employee on the Settlement Date in the same form, and determined in accordance with the undiscounted value of, the consideration received by the holders of Shares in the Change in Control without the requirement that Employee shall have been continuously employed by the Company or by one of its Affiliates from the Grant Date through the last day of the original Performance Period and without the requirement that any portion of such payment be subject to any escrow, earn-out or similar provision.

For purposes of this Agreement, Change in Control shall mean the occurrence of any of the following:

(i) Any individual or group constituting a “person”, as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, (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 (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 Securities Exchange Act of 1934, as amended) 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) 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.

A-3

8. Settlement of Performance Units .

(a) Status as a Creditor . Prior to settlement of any vested Performance Units, the Performance Units will represent an unfunded and unsecured obligation of the Company, payable (if at all) only from the general assets of the Company. The Employee is an unsecured general creditor of the Company, and settlement of vested Performance Units is subject to the claims of the Company’s creditors.

(b) Form and Timing of Settlement . Performance Units will automatically be settled in the form of Shares on the Settlement Date to the extent earned in accordance with the terms hereof. Fractional Shares will not be issued with respect to Performance Units. Where a fractional Share would be owed to the Employee with respect to vested Performance Units, a cash payment equivalent will be paid in place of any such fractional Share using the Fair Market Value on the relevant Settlement Date.

9. Tax Liability and Withholding . The Company or one if its Affiliates shall assess applicable tax liability and requirements in connection with the Employee’s participation in the Plan, including, without limitation, tax liability associated with the grant or settlement of Performance Units or sale of the underlying Shares (the “Tax Liability”). These requirements may change from time to time as laws or interpretations change. Regardless of the Company’s or the Affiliate’s actions in this regard, the Employee hereby acknowledges and agrees that the Tax Liability shall be the Employee’s responsibility and liability. The Employee acknowledges that the Company’s obligation to issue or deliver Shares shall be subject to satisfaction of the Tax Liability. Unless otherwise determined by the Company, Tax Liability shall be satisfied by the Company’s withholding all or a portion of any Shares that otherwise would be issued to the Employee upon settlement of the vested Performance Units; provided that amounts withheld shall not exceed the amount necessary to satisfy the Company’s tax withholding obligations (minimum tax withholding obligations if necessary to avoid adverse accounting consequences). Such withheld Shares shall be valued based on the Fair Market Value as of the date the withholding obligations are satisfied. The Company or one if its Affiliates may, at their discretion, use other methods to satisfy the Tax Liability. Furthermore, the Employee agrees to pay the Company or the Affiliate any Tax Liability that cannot be satisfied by the foregoing methods.

10. Rights as Stockholder . Neither the Employee nor any person claiming under or through the Employee shall have any of the rights or privileges of a stockholder of the Company in respect of any Performance Units (whether vested or unvested) unless and until such Performance Units are settled in Shares and certificates representing such Shares shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Employee. After such issuance, recordation and delivery, the Employee shall have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares. This Agreement does not provide for dividend equivalents.

11. Acknowledgments . The Employee acknowledges and agrees to the following:

•

The Plan is discretionary in nature and the Committee may amend, suspend, or terminate it at any time;

•

The grant of the Performance Units is voluntary and occasional and does not create any contractual or other right to receive future grants of Performance Units, or benefits in lieu of the Performance Units even if the Performance Units have been granted repeatedly in the past;

A-4

•

All determinations with respect to such future Performance Units, if any, including but not limited to, the times when the Performance Units shall be granted or when the Performance Units shall vest, will be at the sole discretion of the Committee;

•

The Employee’s participation in the Plan is voluntary;

•

The value of the Performance Units is an extraordinary item of compensation , which is outside the scope of the Employee’s employment contract (if any), except as may otherwise be explicitly provided in the Employee’s employment contract (if any);

•

The Performance Units are not part of normal or expected compensation or salary for any purpose, including, but not limited to, calculating termination, severance, resignation, redundancy, end of service, or similar payments, or bonuses, long-service awards, pension or retirement benefits;

•

The future value of the Shares is unknown and cannot be predicted with certainty;

•

No claim or entitlement to compensation or damages arises from the termination of the Award or diminution in value of the Performance Units or Shares, and the Employee irrevocably releases the Company and its Affiliates from any such claim that may arise;

•

Neither the Plan nor the Performance Units shall be construed to create an employment relationship where any employment relationship did not otherwise already exist;

•

The transfer of employment of the Employee between the Company and any one of its Affiliates (or between Affiliates) shall not be deemed a Termination of Service;

•

12. Changes in Stock . In the event that as a result of a stock dividend, stock split, reclassification, recapitalization, combination of Shares or the adjustment in capital stock of the Company or otherwise, or as a result of a merger, consolidation, spin-off or other reorganization, the Company’s common stock shall be increased, reduced or otherwise changed, the Performance Units shall, subject to Section 409A of the Code, be properly adjusted.

13. Address for Notices . Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company, in care of its Secretary, at 3100 Hansen Way, Palo Alto, California 94304, or at such other address as the Company may hereafter designate in writing.

A-5

14. Restrictions on Transfer . Except as provided in Paragraph 6 above, this award and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this award, or of any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this award and the rights and privileges conferred hereby immediately shall become null and void. Regardless of whether the transfer or issuance of the Shares to be issued pursuant to this Agreement has been registered under the Securities Act of 1933, as amended (the “1933 Act”) or has been registered or qualified under the securities laws of any state, the Company may impose additional restrictions upon the sale, pledge, or other transfer of the Shares (including the placement of appropriate legends on stock certificates and the issuance of stop-transfer instructions to the Company’s transfer agent) if, in the judgment of the Company and the Company’s counsel, such restrictions are necessary in order to achieve compliance with the provisions of the 1933 Act, the securities laws of any state, or any other law. Stock certificates evidencing the Shares issued pursuant to this Agreement, if any, may bear such restrictive legends as the Company and the Company’s counsel deem necessary under applicable laws or pursuant to this Agreement.

15. Binding Agreement . Subject to the limitation on the transferability of this award contained herein, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

16. Conditions for Issuance of Certificates for Stock . The Shares deliverable to the Employee upon settlement of vested Performance Units may be either previously authorized but unissued Shares or issued Shares which have been reacquired by the Company. The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; (c) the approval or other clearance from any state or federal governmental regulatory body, which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the Settlement Date as the Committee may establish from time to time for reasons of administrative convenience.

17. Plan Governs . This Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan shall govern.

18. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to its principles of conflicts of law.

19. Committee Authority . The Committee shall have the power to interpret the Plan and this Agreement, and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Employee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.

A-6

20. Captions . Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

21. Severability . In the event that any provision in this Agreement shall be held invalid or unenforceable, such provision shall be severable from, and such invalidity or unenforceability shall not be construed to have any effect on, the remaining provisions of this Agreement.

22. Modifications to the Agreement . This Agreement constitutes the entire understanding of the parties on the subjects covered. The Employee expressly warrants that he or she is not executing this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company.

23. Amendment, Suspension or Termination of the Plan . By accepting this award, the Employee expressly warrants that he or she has received a right to an equity based award under the Plan, and has received, read, and understood a description of the Plan. The Employee understands that the Plan is discretionary in nature and may be modified, suspended, or terminated by the Company at any time.

24. Authorization to Release and Transfer Necessary Personal Information. The Employee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data by and among, as applicable, the Company and the Affiliates for the exclusive purpose of implementing, administering and managing the Employee’s participation in the Plan. The Employee understands that the Company and the Affiliates may hold certain personal information about the Employee including, but not limited to, the Employee’s name, home address and telephone number, date of birth, social security number (or any other social or national identification number), salary, nationality, job title, number of Shares held and the details of all Performance Units or any other entitlement to Shares awarded, cancelled, vested, unvested or outstanding for the purpose of implementing, administering and managing the Employee’s participation in the Plan (the “Data”). The Employee understands that the Data may be transferred to the Company or any of the Affiliates, or to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Employee’s country or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Employee’s country. The Employee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Employee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan, including any requisite transfer of such Data to a broker or other third party assisting with the administration of Performance Units under the Plan or with whom Shares acquired pursuant to the Performance Units or cash from the sale of such Shares may be deposited. Furthermore, the Employee acknowledges and understands that the transfer of the Data to the Company or the Affiliates or to any third parties is necessary for his or her participation in the Plan. The Employee understands that Data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan. The Employee understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein by contacting his or her local human resources representative in writing. The Employee further acknowledges that withdrawal

A-7

of consent may affect his or her ability to vest in or realize benefits from the Performance Units, and his or her ability to participate in the Plan. For more information on the consequences of refusal to consent or withdrawal of consent, the Employee understands that he or she may contact his or her local human resources representative.

25. [ Electronic Delivery : By executing this Agreement Employee consents to the electronic delivery of the Plan documents and this Agreement.]

26. [ Execution of this Agreement : Execution of this Agreement, whether in writing or electronic, shall have the same binding effect and shall fully bind Employee and the Company to all of the terms and conditions set forth in this Agreement and the Plan.]

o 0 o

A-8

Exhibit 10.7

VARIAN MEDICAL SYSTEMS, INC.

Grant Agreement – Deferred Stock Units

GRANT AGREEMENT made as of , 20 (the “Grant Date”) between Varian Medical Systems, Inc., a Delaware corporation (the “Company”), and (the “Director”).

1. Grant of Deferred Stock Deferred Stock Units . The Company hereby grants to the Director Deferred Stock Units. Each Deferred Stock Unit shall be deemed to be the equivalent of one Share.

2. Subject to the Plan . The Agreement is subject to, and governed by, the provisions of the Varian Medical Systems, Inc. Third Amended and Restated 2005 Omnibus Stock Plan (the “Plan”) and, unless the context requires otherwise, terms used herein shall have the same meaning as in the Plan. In the event of a conflict between the provisions of the Plan and this Agreement, the Plan shall control.

3. Account . The Company shall credit to a bookkeeping account (the “Account”) maintained by the Company for the Director’s benefit the Deferred Stock Units. On each date that cash dividends are paid on the Shares, the Company will credit the Account with a number of additional Deferred Stock Units equal to the result of dividing (i) the product of the total number of Deferred Stock Units credited to the Account on the record date for such dividend and the per Share amount of such dividend by (ii) the Fair Market Value of one Share on the date such dividend is paid by the Company to shareholders. The additional Deferred Stock Units shall be or become vested to the same extent as the Deferred Stock Units that resulted in the crediting of such additional Deferred Stock Units.

4. Vesting . All of the Deferred Stock Units shall initially be unvested. During the 12-month period following the Grant Date, 25% of the Deferred Stock Units shall become vested as of the end of each 3-month period following the Grant Date, provided the Director has continued on the Board until the end of such 3-month period. All of the Deferred Stock Units credited to the Account shall become fully vested upon the occurrence of a Change in Control (as defined in Appendix A) or the Director’s death, provided the Director is then serving on the Board.

5. Termination of Service . In the event of the Director’s Termination of Service, other than as a result of death, Disability or Retirement, the Deferred Stock Units credited to the Account that were not vested on the date of such Termination of Service shall be immediately forfeited. In the event of the Director’s death, Disability or Retirement while serving on the Board, all of the Deferred Stock Units credited to the Account shall become fully vested. For purposes of this Agreement, “Termination of Service” shall mean “separation from service” as that term is defined in Section 409A of the Code and the applicable guidance issued by the Secretary of the Treasury thereunder.

6. Forfeiture upon Engaging in Detrimental Activities . If, at any time within one (1) year after the Director’s Termination of Service for any reason, the Director engages in any activity in competition with any activity of the Company, or inimical, contrary or harmful to the interests of the Company, including, but not limited to: (i) conduct related to the Director’s service on the Board for which either criminal or civil penalties against the Director may be sought, (ii) violation of the Company’s policies, or (iii) disclosure or misuse of any confidential information or material concerning the Company, then (A) the Deferred Stock Units shall be forfeited effective as of the date on which the Director enters into such activity, and (B) the Director shall within ten (10) days after written notice from the Company return to the Company the Shares paid by the Company to the Director with respect to the Deferred Stock Units and, if the Director has previously sold all or a portion of the Shares paid to the Director by the Company, the Director shall pay the proceeds of such sale to the Company.

7. Payment of Deferred Stock Units . The Company shall make a payment to the Director of the vested Deferred Stock Units credited to the Account as provided in Section 8 upon the earliest of (i) the Director’s Termination of Service for any reason, (ii) the third anniversary of the Grant Date, (iii) a Change in Control, or (iv) the Director’s death (in accordance with the provisions of Section 9); provided that if payment is made pursuant to Section 7(i) and the Director is deemed at the time of such Termination of Service to be a “specified” employee under Section 409A of the Code, then payment shall not be made or commence until the earliest of (i) the expiration of the six (6)-month period measured from the date of Director’s Termination of Service; or (ii) the date of Director’s death following such Termination of Service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to Director, including (without limitation) the additional twenty percent (20%) tax for which Director would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral.

8. Form of Payment . Payments pursuant to Section 7 shall be made in Shares equal to the number of vested Deferred Stock Units credited to the Account. Payment shall be made as soon as practicable after the applicable payment date, but in no event later than 30 days after the date established pursuant to Section 7.

9. Beneficiary . In the event of the Director’s death prior to payment of the Deferred Stock Units credited to the Account, payment shall be made to the last beneficiary designated in writing that is received by the Company prior to the Director’s death or, if no designated beneficiary survives the Director, such payment shall be made to the Director’s estate.

10. Source of Payments . The Director’s right to receive payment under this Agreement shall be an unfunded entitlement and shall be an unsecured claim against the general assets of the Company. The Director has only the status of a general unsecured creditor hereunder, and this Agreement constitutes only a promise by the Company to pay the value of the Account on the payment date.

11. Nontransferability . Except as otherwise permitted under the Plan, this Agreement shall not be assignable or transferable by the Director or by the Company (other than to successors of the Company) and no amounts payable under this Agreement, or any rights

- 2 -

therein, shall be subject in any manner to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, levy, lien, attachment, garnishment, debt or other charge or disposition of any kind .

12. Notices . All notices required or permitted under this Agreement shall be in writing and shall be delivered personally or by mailing the same by registered or certified mail postage prepaid, to the other party. Notice given by mail shall be deemed delivered at the time and on the date the same is postmarked.

Notices to the Company should be addressed to:

Varian Medical Systems, Inc.

3100 Hansen Way

Palo Alto, California 94304

Attention: General Counsel

Notices to the Director should be addressed to the Director at the Director’s address as it appears on the Company’s records. The Company or the Director may by writing to the other party, designate a different address for notices.

13. Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the heirs, legatees, distributees, executors and administrators of the Director and the successors and assigns of the Company.

14. Governing Law . This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Delaware, other than its conflict of laws principles.

15. Entire Agreement; Modification . This Agreement and the Plan constitute the entire agreement between the parties relative to the subject matter hereof, and supersede all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement. This Agreement may be modified, amended or rescinded only by a written agreement executed by both parties.

16. Compliance with Section 409A of the Code . This Agreement is intended to comply and shall be administered in a manner that is intended to comply with section 409A of the Code and shall be construed and interpreted in accordance with such intent. Payment under this Agreement shall be made in a manner that will comply with section 409A of the Code, including regulations or other guidance issued with respect thereto, as determined by the Committee. Any provision of this Agreement that would cause the payment or settlement thereof to fail to satisfy section 409A of the Code shall be amended to comply with section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under section 409A of the Code.

- 3 -

17. Severability . The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.

IN WITNESS WHEREOF, this Agreement has been executed by the Company and the Director, effective as of the date at the top of this Agreement.

- 4 -

APPENDIX A

“Change in Control” means and shall be deemed to have occurred as of the date of the first to occur of the following events:

(a) Any Person or Group (other than a Person or Group who effectively controls the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)) acquires stock of the Company that, together with stock held by such Person or Group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company. However, if any Person or Group is considered to own more than 50% of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same Person or Group is not considered to cause a Change in Control. An increase in the percentage of stock owned by any Person or Group as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this subsection. This subsection applies only when there is a transfer of stock of the Company (or issuance of stock of the Company) and stock in the Company remains outstanding after the transaction;

(b) Any Person or Group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Group) ownership of stock of the Company possessing 35% or more of the total voting power of the stock of the Company. However, if any Person or Group is considered to effectively control the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi), the acquisition of additional stock by the same Person or Group is not considered to cause a Change in Control;

(c) A majority of members of the Company’s Board is replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board prior to the date of the appointment or election; or

(d) Any Person or Group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Group) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. However, no Change in Control shall be deemed to occur under this subsection (d) as a result of a transfer to an entity that is controlled by the shareholders of the Company immediately after the transfer as follows:

(i) A shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock;

(ii) An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company;

(iii) A Person or Group that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company; or

(iv) An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in clause (iii) above.

For purposes of clauses (ii), (iii), and (iv) above, a Person’s or a Group’s status is determined immediately after the transfer of assets.

For these purposes, the term “Person” shall mean an individual, Company, association, joint stock company, business trust or other similar organization, partnership, limited liability company, joint venture, trust, unincorporated organization or government or agency, instrumentality or political subdivision thereof or any other person, in each case, to the extent consistent with Treasury Regulation Section 1.409A-3(i)(5). The term “Group” shall have the meaning set forth in Treasury Regulation Section 1.409A-3(i)(5), or any successor thereto in effect at the time a determination of whether a Change of Control has occurred is being made.

A-2

Exhibit 10.8

VARIAN MEDICAL SYSTEMS, INC.

Grant Agreement – Deferred Stock Units

GRANT AGREEMENT made as of , 20 (the “Grant Date”) between Varian Medical Systems, Inc., a Delaware corporation (the “Company”), and (the “Director”).

1. Grant of Deferred Stock Deferred Stock Units . The Company hereby grants to the Director Deferred Stock Units. Each Deferred Stock Unit shall be deemed to be the equivalent of one Share.

7 . Service Acknowledgments . Nothing in this Agreement or the Plan shall confer upon the Director any right to continue service on the Board of the Company or its Subsidiaries (as the case may be). In addition, the Director acknowledges and agrees to the following:

(a) The Plan is discretionary in nature and the Company may amend, suspend, or terminate it at any time;

(b) The grant of the Deferred Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of Deferred Stock Units, or benefits in lieu of the Deferred Stock Units even if the Deferred Stock Units have been granted repeatedly in the past;

(c) All determinations with respect to such future Deferred Stock Units, if any, including but not limited to, the times when the Deferred Stock Units shall be granted or when the Deferred Stock Units shall vest, will be at the sole discretion of the Board;

(d) The Director’s participation in the Plan is voluntary;

(e) The value of the Deferred Stock Units is an extraordinary item of compensation, which is outside the scope of the Director’s service contract (if any), except as may otherwise be explicitly provided in the Director’s service contract (if any);

(f) The Deferred Stock Units are not part of normal or expected compensation for any purpose, including, but not limited to, calculating termination, severance, resignation, redundancy, end of service, or similar payments, or bonuses, long-service awards, pension or retirement benefits;

(g) The future value of the Shares is unknown and cannot be predicted with certainty;

(h) No claim or entitlement to compensation or damages arises from the termination of the Deferred Stock Units or diminution in value of the Deferred Stock Units or Shares and the Director irrevocably release the Company and its Subsidiaries from any such claim that may arise;

(i) Neither the Plan nor the Deferred Stock Units shall be construed to create an employment or service relationship where any such relationship did not otherwise already exist.

8. Payment of Deferred Stock Units . The Company shall make a payment to the Director of the vested Deferred Stock Units credited to the Account as provided in Section 9 upon the earliest of (i) the Director’s Termination of Service for any reason, (ii) the third anniversary of the Grant Date, (iii) a Change in Control, or (iv) the Director’s death (in accordance with the provisions of Section 10); provided that if payment is made pursuant to Section 7(i) and the Director is deemed at the time of such Termination of Service to be a “specified” employee under Section 409A of the Code, then payment shall not be made or commence until the earliest of (i) the expiration of the six (6)-month period measured from the date of Director’s Termination of Service; or (ii) the date of Director’s death following such Termination of Service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to Director, including (without limitation) the additional twenty percent (20%) tax for which Director would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral.

9. Form of Payment . Payments pursuant to Section 8 shall be made in Shares equal to the number of vested Deferred Stock Units credited to the Account. Payment shall be made as soon as practicable after the applicable payment date, but in no event later than 30 days after the date established pursuant to Section 8.

10. Beneficiary . In the event of the Director’s death prior to payment of the Deferred Stock Units credited to the Account, payment shall be made to the last beneficiary designated in writing that is received by the Company prior to the Director’s death or, if no designated beneficiary survives the Director, such payment shall be made to the Director’s estate.

11. Source of Payments . The Director’s right to receive payment under this Agreement shall be an unfunded entitlement and shall be an unsecured claim against the general assets of the Company. The Director has only the status of a general unsecured creditor hereunder, and this Agreement constitutes only a promise by the Company to pay the value of the Account on the payment date.

12. Tax Liability . The Company or any of its Subsidiaries shall assess tax and social insurance contribution liability and requirements in connection with the Director’s participation in the Plan, including, without limitation, tax liability and social insurance contribution liability associated with the grant exercise or payment of the Deferred Stock Units or sale of the underlying Shares (the “Tax Liability”). These requirements may change from time to time as laws or interpretations change. Regardless of the Company’s or any Subsidiary’s actions in this regard, the Director hereby acknowledges and agrees that the Tax Liability shall be the Director’s ultimate responsibility and liability. The Director agrees as a condition of his or her participation in the Plan to make arrangements satisfactory to the Company and its Subsidiary to enable it to satisfy any withholding, payment and/or collection requirements associated with the satisfaction of the Tax Liability, including authorizing the Company or the Subsidiary to: (i) withhold all

applicable amounts from the Director’s wages or other cash compensation due to the Director, in accordance with any requirements under the laws, rules, and regulations of the country of which the Director is a resident, and (ii) act as the Director’s agent to sell sufficient Shares for the proceeds to settle such requirements. Furthermore, the Director agrees to pay the Company or the Subsidiary any amount the Company or any Subsidiary may be required to withhold, collect or pay as a result of the Director’s participation in the Plan or that cannot be satisfied by deduction from the Director’s wages or other cash compensation paid to the Director by the Company or the Subsidiary or sale of the Shares acquired under the Plan. The Director acknowledges that he or she may not participate in the Plan and the Company and the Subsidiary shall have no obligation to deliver Shares until the Tax Liability has been satisfied by the Director.

13. Data Protection . The Director hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of his or her personal data by and among, as applicable, the Company and any Subsidiary for the exclusive purpose of implementing, administering and managing the Director’s participation in the Plan. The Director understands that the Company and its Subsidiaries may hold certain personal information about the Director including, but not limited to, the Director’s name, home address and telephone number, date of birth, social security number (or any other social or national identification number), salary, nationality, job title, number of Shares held and the details of the Deferred Stock Units or any other entitlement to Shares awarded, cancelled, vested, unvested or outstanding for the purpose of implementing, administering and managing the Director’s participation in the Plan (the “Data”). The Director understands that the Data may be transferred to the Company or any Subsidiaries, or to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Director’s country or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than the Director’s country. The Director understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting the Company. The Director authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan, including any requisite transfer of such Data to a broker or other third party assisting with the administration of the Deferred Stock Units under the Plan or with whom Shares acquired pursuant to the Deferred Stock Units or cash from the sale of such Shares may be deposited. Furthermore, the Director acknowledges and understands that the transfer of the Data to the Company or Subsidiaries or to any third parties is necessary for his or her participation in the Plan. The Director understands that Data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan. The Director understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein by contacting the Company in writing. The Director further acknowledges that withdrawal of consent may affect his or her ability to vest in, exercise or realize benefits from the Deferred Stock Units, and his or her ability to participate in the Plan. For more information on the consequences of refusal to consent or withdrawal of consent, the Director understands that he or she may contact the Company.

14 . Nontransferability . Except as otherwise permitted under the Plan, this Agreement shall not be assignable or transferable by the Director or by the Company (other than to successors of the Company) and no amounts payable under this Agreement, or any rights therein, shall be subject in any manner to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, levy, lien, attachment, garnishment, debt or other charge or disposition of any kind.

15. Notices . All notices required or permitted under this Agreement shall be in writing and shall be delivered personally or by mailing the same by registered or certified mail postage prepaid, to the other party. Notice given by mail shall be deemed delivered at the time and on the date the same is postmarked.

Notices to the Company should be addressed to:

Varian Medical Systems, Inc.

3100 Hansen Way

Palo Alto, California 94304

Attention: General Counsel

16. Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the heirs, legatees, distributees, executors and administrators of the Director and the successors and assigns of the Company.

17. Governing Law . This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Delaware, other than its conflict of laws principles.

18. Compliance with Laws and Regulations . The Director understands that the grant, vesting and payments of the Deferred Stock Units under the Plan and the issuance, transfer, assignment, sale, or other dealings of the Shares shall be subject to compliance by the Company (and its Subsidiaries) and the Director with all applicable laws, rules, and regulations. Furthermore, the Director agrees that he or she will not acquire Shares pursuant to the Plan except in compliance with all applicable laws, rules and regulations.

19. Entire Agreement; Modification . This Agreement and the Plan constitute the entire agreement between the parties relative to the subject matter hereof, and supersede all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement. This Agreement may be modified, amended or rescinded only by a written agreement executed by both parties.

20. Compliance with Section 409A of the Code . This Agreement is intended to comply and shall be administered in a manner that is intended to comply with section 409A of the Code and shall be construed and interpreted in accordance with such intent. Payment under

this Agreement shall be made in a manner that will comply with section 409A of the Code, including regulations or other guidance issued with respect thereto, as determined by the Committee. Any provision of this Agreement that would cause the payment or settlement thereof to fail to satisfy section 409A of the Code shall be amended to comply with section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under section 409A of the Code.

21. Severability . The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.

22 . Electronic Delivery and Execution . The Company may, in its sole discretion, decide to deliver any documents related to Deferred Stock Units awarded under the Plan or future Deferred Stock Units that may be awarded under the Plan by electronic means or request Director’s consent to participate in the Plan by electronic means. The Director hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. Electronic execution of this Agreement and/or other documents shall have the same binding effect as a written or hard copy signature and accordingly, shall bind the Director and the Company to all of the terms and conditions set forth in the Plan, this Agreement and/or such other documents.

IN WITNESS WHEREOF, this Agreement has been executed by the Company and the Director, effective as of the date at the top of this Agreement.

Exhibit 10.8

APPENDIX A

“Change in Control” means and shall be deemed to have occurred as of the date of the first to occur of the following events:

(i) A shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock;

(ii) An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company;

(iii) A Person or Group that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company; or

(iv) An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in clause (iii) above.

For purposes of clauses (ii), (iii), and (iv) above, a Person’s or a Group’s status is determined immediately after the transfer of assets.

Exhibit 15.1

May 8, 2012

Securities and Exchange Commission

100 F Street, N.E.

N.W. Washington, D.C. 20549

Commissioners:

We are aware that our report dated May 8, 2012 on our review of interim financial information of Varian Medical Systems, Inc. for the three-month and six-month periods ended March 30, 2012 and April 1, 2011 and included in the Company’s quarterly report on Form 10-Q for the quarter ended March 30, 2012 is incorporated by reference in its Registration Statements on Form S-8 (No. 333-168444, No. 333-168443, No. 333-146176, No. 333-130001, No. 333-152903, No. 333-123778, No. 333-75531, No. 333-57006, No. 333-57008, No. 333-57010, No. 333-57012 and No. 333-161307).

Yours very truly,

/ S / P RICEWATERHOUSE C OOPERS LLP

PricewaterhouseCoopers LLP

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy E. Guertin, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Varian Medical Systems, Inc. (the “registrant”);

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;

The registrant’s other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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 quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer 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 the registrant’s board of directors (or persons performing the equivalent functions):

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

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.


Dated: May 8, 2012		/s/ Timothy E. Guertin
		Timothy E. Guertin
		President
		and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Elisha W. Finney, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Varian Medical Systems, Inc. (the “registrant”);

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;

5.	The registrant’s other certifying officer 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 the registrant’s board of directors (or persons performing the equivalent functions):

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.


Dated: May 8, 2012		/s/ Elisha W. Finney
		Elisha W. Finney
		Executive Vice President, Finance and
		Chief Financial Officer

Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report of Varian Medical Systems, Inc. (the “Company”), on Form 10-Q for the quarter ended March 30, 2012 (the “Report”), I, Timothy E. Guertin, President and Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:

(1)

the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: May 8, 2012		/s/ Timothy E. Guertin
		Timothy E. Guertin
		President
		and Chief Executive Officer

Exhibit 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report of Varian Medical Systems, Inc. (the “Company”), on Form 10-Q for the quarter ended March 30, 2012 (the “Report”), I, Elisha W. Finney, Executive Vice President, Finance and Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:

(1)

the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: May 8, 2012		/s/ E LISHA W. F INNEY
		Elisha W. Finney
		Executive Vice President, Finance and
		Chief Financial Officer