Varian Medical Systems (VAR)

Marketable Securities

Marketable securities with an original maturity of more than three months and less than one year at the date of purchase are considered to be short-term. Auction rate securities are classified as short-term available-for-sale securities. Other marketable securities are classified as held-to-maturity because the Company has the intent and ability to hold these securities to maturity. The held-to-maturity securities are carried at amortized cost using the specific identification method. Interest income is recorded using an effective interest rate, with the associated premium or discount amortized to interest income. Additionally, the Company assesses whether an other-than-temporary impairment loss on the investments has occurred due to declines in fair value or other market conditions. Declines in fair value that are considered other than temporary, if any, are recorded as charges in the Consolidated Statements of Earnings. The Company did not have any impairment loss on marketable securities for fiscal years 2007, 2006 and 2005.

2. MARKETABLE SECURITIES

At June 29, 2007, the Company did not have any marketable securities. At September 29, 2006, the carrying amounts of marketable securities, which were all municipal securities, were reflected as follows:

2. MARKETABLE SECURITIES

At March 30, 2007, the Company did not have any marketable securities. At September 29, 2006, the carrying amounts of marketable securities, which were all municipal securities, were reflected as follows:

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Table of Contents

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(Unaudited)

2. MARKETABLE SECURITIES

The carrying amounts of marketable securities, which are all municipal securities, are reflected as follows:

At December 29, 2006, the remaining contractual maturities of all marketable securities were less than one year.

Marketable Securities

The Company’s marketable securities comprise municipal bonds. Marketable securities with an original maturity of more than three months and less than one year at the date of purchase are considered to be short-term. Auction rate securities are classified as short-term available-for-sale securities. Other marketable securities are classified as held-to-maturity because the Company has the intent and ability to hold these securities to maturity. The held-to-maturity securities are carried at amortized cost using the specific identification method. Interest income is recorded using an effective interest rate, with the associated premium or discount amortized to interest income. Additionally, the Company assesses whether an other-than-temporary impairment loss on the investments has occurred due to declines in fair value or other market conditions. Declines in fair value that are considered other than temporary, if any, are recorded as charges in the Consolidated Statements of Earnings. The Company did not have any impairment loss on marketable securities for fiscal years 2006, 2005 and 2004. At September 29, 2006, all investments were in compliance with the corporate investment policy which requires a credit rating of A or better and a maturity of less than three years.

2. MARKETABLE SECURITIES

The carrying amounts of marketable securities, which are all municipal bonds, are reflected as follows:

Marketable Securities

The Company’s marketable securities primarily comprise municipal bonds. Marketable securities with an original maturity of more than three months and less than one year at the date of purchase are considered to be short-term. Auction rate securities are classified as available-for-sale. Other marketable securities are classified as held-to-maturity because the Company has the intent and ability to hold these securities to maturity. The held-to-maturity securities are carried at amortized cost using the specific identification method. Interest income is recorded using an effective interest rate, with the associated premium or discount amortized to interest income. Additionally, the Company assesses whether an other-than-temporary impairment loss on the investments has occurred due to declines in fair value or other market conditions. Declines in fair value that are considered other than temporary, if any, are recorded as charges in the consolidated statements of earnings. At September 30, 2005, all investments were in compliance with the corporate investment policy which requires a credit rating of A or better and a maturity of less than three years.

2. MARKETABLE SECURITIES

The carrying amounts of marketable securities are as follows:

The Company has historically classified auction rate securities as cash and cash equivalents if the period between interest rate resets was 90 days or less, which was based on the Company’s ability to either liquidate its holdings or roll its investment over to the next reset period. Based on the Company’s re-evaluation of the maturity dates associated with the underlying bonds, the Company has concluded it is appropriate to classify $106.6 million of its auction rate securities, previously classified as cash and cash equivalents, as short-term marketable securities in the condensed consolidated balance sheet as of October 1, 2004.  In addition, the Company has reported gross purchases and sales of such auction rate securities as investments in the condensed consolidated statements of cash flows for the nine month period ended July 2, 2004 to conform to the current period’s presentation.  This change in classification does not affect previously reported cash flows from operations or from financing activities in the Company’s previously reported Consolidated Statement of Cash Flows, or its previously reported Consolidated Statements of Earnings for any period.