‘02VARIAN

IMRT Targeting Cancer

Digital X-Ray Imaging Looking Into the Future

Nowhere to Hide X Rays and

Homeland Security

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Varian Medical Systems 2002 Annual Report

Varian Medical Systems, Inc. (NYSE:VAR) is the world’s leading supplier of integrated radio-therapy systems for treating cancer and a leading supplier of X-ray tubes for imaging in medical,scientific, and industrial applications. The company employs approximately 2,750 people at man-ufacturing sites in North America and Europe and in some 50 sales and support offices worldwide.

F I N A N C I A L H I G H L I G H T S

Fiscal Years

(Amounts in millions, except per share amounts) 2002 2001 2000

Sales – as Reported $ 873.1 $773.6 $689.7

Sales – Pro Forma n/a n/a $677.2(1)

Net Earnings from Continuing

Operations – as Reported $ 93.6 $ 68.0(2) $ 53.0

Net Earnings from Continuing

Operations – Pro Forma n/a $ 71.3(3) $ 49.2(1)

Net Earnings per Diluted Share

from Continuing Operations –

as Reported(4) $ 1.33 $ 0.99(2) $ 0.82

Net Earnings per Diluted Share

from Continuing Operations –

Pro Forma(4) n/a $ 1.04(3) $ 0.76(1)

Net Orders $ 973.6 $858.2 $762.1

Backlog – as Reported $ 698.2 $597.8 $472.6

Backlog – Pro Forma n/a n/a $513.2(1)

(1) FY00 is presented on a pro forma basis (assuming SAB 101 was applied retroactive to prior periods) for comparison purposes.(2) FY01 reported net earnings exclude cumulative effect of accounting changes.(3) FY01 pro forma net earnings exclude the effect of the $5 million dpiX investment write-off and the cumulative effect of

an accounting change (SAB 101).(4) FY01 and FY00 have been restated for the two-for-one stock split (effected in the form of a stock dividend) paid on

January 15, 2002.

Except for historical information, this summary annual report contains “forward-looking” statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. Statements concerning industry outlook, including market acceptance of ortransition to new products or technology such as IMRT, software, and advanced X-ray products; growth drivers; our orders, sales,backlog, or earnings growth; future financial results and any statements using the terms “expect,” “anticipate,” “should,”“will,” “planning,” “continue,” or similar statements are forward-looking statements that involve risks and uncertainties thatcould cause our actual results to differ materially from those anticipated. Such risks and uncertainties include, without limita-tion, demand for our products; our ability to develop and commercialize new products; the impact of competitive products andpricing; the effect of economic conditions and currency exchange rates; our ability to maintain or increase operating margins;our ability to meet demand for manufacturing capacity; the effect of environmental claims and expenses; our ability to protectour intellectual property; our reliance on sole source or limited source suppliers; the impact of managed care initiatives or otherhealthcare reforms on capital expenditures and/or third-party reimbursement levels; our ability to meet U.S. FDA and other reg-ulatory requirements or product clearances; our dependency on a small number of customers for a significant amount of oursales; our reliance on a limited group of suppliers, and in some cases sole source suppliers, for some product components; thepotential loss of key distributors; the possibility that material product liability claims could harm future sales or require us topay uninsured claims; the risk of operations interruptions due to events beyond our control; and other risks detailed from timeto time in our filings with the Securities and Exchange Commission. We assume no obligation to update or revise any forward-looking statements because of new information, future events, or otherwise.

Acuity, BrachyVision, CadPlan PLUS, Eclipse, Exact, EXaCT Targeting, Dynamic Targeting, Generation 6, Helios, Millennium,PortalVision, RPM, See & Treat Cancer Care, Silhouette, SmartBeam, Snowbird, VariSeed, VariSource, and Vision are trademarksof Varian Medical Systems, Inc.

CadPlan, Clinac, GammaMed, Linatron, PaxScan, Varian, Varian Medical Systems, VARiS, and Ximatron are registered trade-marks of Varian Medical Systems, Inc.

Discovery LS is a trademark of GE Medical Systems.

O N T H E C O V E R A cancercell derived from a fibroblasttumor line is depicted in alaser scanning confocalmicrograph. The cell nucleusis shown in purple. Parts ofthe cell cytoskeleton areshown in orange (actin) andgreen (vimeutin). Fibroblastsare connective tissue cells.

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Contents02 Letter to Stockholders

Varian Medical Systems President and CEO Richard M. Levy andChairman of the Board Richard W. Vieser have a lot to talk aboutin ’02 Varian, the summary annual report for fiscal year 2002. Itwas a highly productive and successful year for the company.

04 IMRT: Targeting CancerThe situation is like a science fiction movie. A deadly enemyinvades the human body and medical teams fight back withamazing new technology that can detect, track, target, anddestroy the invader with an intense beam of radiation.

14 Digital X-Ray Imaging: Looking Into the FutureNew digital technology in the form of solid-state, amorphous- silicon flat panels, is showing the potential to revolutionize X-rayimaging whether it’s for medical diagnosis and treatment, securityscreening, or industrial inspection.

18 Nowhere to Hide: X Rays and Homeland SecurityWith more than six million cargo containers arriving in 361 U.S.seaports every year, customs officials need a way to look insidethem. X rays from linear accelerators that have the power to pene-trate up to 17 inches of solid steel leave no place to hide. Theseaccelerators are already working in many foreign ports.

22 Business OverviewsOncology SystemsX-Ray ProductsGinzton Technology Center and BrachyTherapy

25 Financial TablesEarningsBalance SheetsCash Flows

28 Officers and Directors18

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VA R I A N M E D I C A L S Y S T E M S 2 0 0 2 A N N UA L R E P O RT2

TO OUR STOCKHOLDERS,

For fiscal year 2002, the company reported: ■ A 13 percent increase in net orders to

$974 million■ A 13 percent increase in sales to

$873 million■ A 2 point boost in the gross margin

to 39 percent■ A 2 point increase in our return on sales

to 16.6 percent■ A 17 percent increase in our year-ending

backlog to a record $698 million■ A 31 percent increase in net earnings to

$93.6 million ($1.33 per diluted share) com-pared to prior year pro-forma earnings(2)

We increased our year-end cash and mar-ketable securities by 36 percent to $299million, even after spending $55 million torepurchase 1.4 million shares of commonstock. The company generated operatingcash flow of $156 million for the year,helped in part by a sharp reduction in dayssales outstanding, which stood at 80 days atthe end of the year. Shareholder equity was$473 million at the end of the fiscal year,up 20 percent from the prior year.

All three of our business segmentsachieved success during the year, but in dif-ferent ways. The Oncology Systems unitcapitalized on a booming radiation oncolo-gy market, which is well funded and sup-ported by reimbursement rates that arefavorable to Intensity Modulated RadiationTherapy (IMRT), the most advanced formof modern radiotherapy. Our X-RayProducts group responded effectively totough economic conditions including diffi-cult challenges in Japan by improving fac-tory efficiency, enhancing product quality,and introducing new products that opened

new market opportunities. The GinztonTechnology Center put our emergingBrachyTherapy business on its feet andextended our technical capabilities. Whilevaried, these achievements come by virtueof a characteristic that is shared through-out our company – the ability to execute.

O N C O L O G Y S Y S T E M SOncology Systems boosted annual salesand net orders by 18 percent over the previous year and managed a 40 percentincrease in operating profits. This growthcame from market expansion and anincrease in our already significant marketleadership position.

As of the end of the fiscal year, we hadequipped many more radiation oncologyclinics for Varian SmartBeam™ IMRT,which enables doctors to improve outcomesby focusing higher doses of radiation moreprecisely on tumors while reducing compli-cations by avoiding surrounding healthy tissue. The number of clinics treatingpatients with IMRT had jumped to 188 –more than double the number that wereoffering this treatment last year. With ongo-ing product enhancements, growing mediacoverage, and stronger patient demand, the pace of adoption remains rapid.

Our commitment to provide a “best-in-class” product for every facet of radiothera-py and to integrate these products into auser-friendly, fast, reliable system has provento be a winning strategy. We consider our-selves to be second to none in software fortreatment planning and management andin image-guided three-dimensional radio-therapy systems components.

At the annual meeting of the AmericanSociety of Therapeutic Radiology andOncology (ASTRO), we introduced ourAcuity™ planning, simulation, and verifica-tion system, which will make it substantial-ly easier for clinics to begin treatingpatients with IMRT. We also gave cus-tomers a glimpse of the future by display-ing a prototype Clinac® linear acceleratorwith an on-board imaging system, whichwill enable clinics to track and adjust for tumor motion during treatment. WithIMRT, this is becoming an essential capa-bility. Both Acuity and the on-board imaging system feature a flat panel imagerand X-ray tube built by our X-RayProducts business.

X - R AY P R O D U C T SOur X-Ray Products group overcame a very tough first half and got back onto thegrowth track in the second half, creatingnew market opportunities while tightly controlling costs to maintain profitability. In the second half this group reached newagreements with two major customers whohave committed to buying more tubes. Ourengineers developed several new products,including X-ray tubes for CT scanning andairport explosive detection systems, in recordtime. These new products are already beingshipped to customers. The group also initiat-ed production of our new PaxScan® 4030Aflat-panel X-ray imager, a significant entry in what is expected to be a large market inthe future. With disciplined management, X-Ray Products also cut the cost of productfailures and improved factory efficiency.

G I N Z T O N T E C H N O L O G Y C E N T E RThe Ginzton Technology Center success-fully fulfilled its incubation mission with ourBrachyTherapy business. We acquired theGammaMed® business from MDSNordion, creating a $30 million annualbrachytherapy business with a strong globalpresence. Our BrachyTherapy group alsointroduced a new version of the VariSeed™

software product, which enables doctors toimprove treatment precision through intra-operative planning. The Ginzton grouppassed several milestones in key research

Welcome to ’02 Varian, a magazine andsummary annual report highlighting theachievements of Varian Medical Systems in fiscal year 2002. We have a lot to talk

about. Fiscal 2002 was a high-ly productive and successfulyear for our company.

Levy Vieser

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projects. Engineers demonstrated the feasi-bility of cone beam CT scanning on ourClinac and Acuity products, real-time respi-ratory gating, and the use of marker seedsto track prostate tumor movements.

We reshaped the organization through several key management appointmentsdesigned to build upon our talent, consoli-date and streamline operations, accentuateand share best practices, and better focusresources into emerging enterprises.Timothy E. Guertin, president of OncologySystems and a 25-year veteran of the busi-ness, has been made executive vice presidentof the company. We expect that the newstructure will serve us well as our ordersapproach the $1 billion mark.

In ’02 Varian, we highlight the technolo-gies that we expect will carry us forward inour ongoing campaign to expand a highlyprofitable business based on fighting cancer,improving X-ray imaging, and enhancinginspection and security capabilities. Weexpect that you will find the informationherein as compelling as we do.

Before signing off, we must acknowledgethe fine work of our employees. They haveexecuted our strategies with a commitmentand passion that come from knowing thatwe are making a difference for the better.Their many achievements in fiscal 2002have positioned our company for anotherexcellent year in fiscal 2003. We all lookforward to sharing our progress with youand we thank you for your support.

Sincerely,

Richard M. LevyPresident and CEO

Richard W. VieserChairman of the Board

$698MR E C O R D B A C K L O G U P 1 7 %

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(1) FY00 is presented on a pro forma basis (assuming SAB 101 was applied retroactive to prior periods) for comparison purposes.(2) Excludes the effect of the $5 million dpiX investment write-off and the cumulative effect of an accounting change (SAB 101).(3) FY00 sales are presented on a pro forma basis (assuming SAB 101 was applied retroactive to prior periods) for comparison purposes.

5I M RT: TA RG E T I N G C A N C E R

TargetingCancer

The situation reads like the scenario for a science fiction movie. Theenemy is an alien intruder that invades the human body, with deadly con-sequences. This enemy comes in many different forms and assumes abewildering assortment of odd shapes, which can change when it is underattack. In their search for weapons with which to fight back, humans havedeveloped an amazing technology — one that can seek out and identifythe enemy as it hides within its intended victim; track and target its loca-tion, adjusting to any changes of shape or position; and destroy theinvader with an intense beam of radiation that does minimal harm to thehost body. The bad news about this scenario is thatthe enemy described is an all too real disease — can-cer — the second-leading cause of death in theUnited States (after heart disease) and the slayer ofmillions worldwide every year. The good news is thatthe weapon described is real, too. It is a technologycalled Intensity Modulated Radiation Therapy(IMRT) and it is offering many cancer patients per-haps their best hope ever for successful treatment.

The Millennium multileaf colli-mator shapes radiation beamswith 120 computer-controlled“leaves” or “fingers”.

IMRT

A W O M A N N A M E D S A R A HTake a look at what happens in the hypothetical case of awoman whose name, let’s say, is Sarah. She is 42 years old, ismarried, and has two daughters, ages 12 and 10. She has goneto her primary care physician complaining of a nagging coughand occasional shortness of breath. She appears to be in goodhealth otherwise, exercises regularly, watches her weight, andhas never smoked. Nonetheless, chest X rays and follow-up testsconfirm that she has lung cancer, the leading cause of deathamong the known forms of cancer, claiming more victims in theU.S. than breast, prostate, ovarian, and colon cancer combined.She is among the nearly one out of every five victims of lungcancer who neither smoke nor live with a smoker. What’s worse,the tumor has been classified as a type that, because of its sizeand general location, is inoperable using conventional pul-monary surgery.

Other medical conditions make chemotherapy problematic.Like more than half of all the other cancer patients who aretreated in the United States, Sarah is advised to undergo radia-tion therapy, also known as radiotherapy. As recently as five yearsago, Sarah’s lung cancer would probably have been untreatablewith radiotherapy because large doses of high-energy X rays,much like the chemicals used in chemotherapy, inflicted exten-sive collateral damage to surrounding healthy tissue. To mini-mize the effects of collateral damage, oncologists often had tolimit the treatment dosages, which in turn cut down on the effec-tiveness of the therapy. This drawback would have been particu-larly acute in Sarah’s case, because lung tissue is especiallysensitive to radiation damage and lung tumors are highly resist-ant to radiation treatment.

Fortunately, Sarah has a new treatment option that has onlyrecently become available. She can be treated at one of about200 radiation oncology clinics around the world now using newSmartBeam™ IMRT technology developed by Varian Medical

Systems. SmartBeam IMRT has been compared to shooting at atarget with the precision of a high-powered laser. With IMRT,the target area covered by the X-ray beam is narrowed andmatched to the shape of the tumor. This enables the oncologyteam to direct and narrowly concentrate potent doses of high-energy X rays at Sarah’s tumor while minimizing complicationsfrom hitting surrounding healthy tissue.

With SmartBeam IMRT, Sarah’s oncology team will put hertumor in a crossfire, targeting it with precisely shaped beams deliv-ered from several directions or angles. This will envelop the tumorin a finely sculpted radiation cloud within the area where thebeams intersect.

T H E P R E PA R AT I O NBefore beginning Sarah’s treatment, doctors will need digitalhigh-resolution 3D images of her tumor and the surroundinganatomy. With sophisticated diagnostic imaging, the oncologyteam can establish the exact location and shape of Sarah’s tumor.This will make it possible to develop the treatment plan needed todeliver a high enough dose to eradicate the tumor without harm-ing the surrounding tissue.

To obtain the needed images, Sarah’s doctors may choose touse Computed Tomography (CT) in combination with Positron-Emission Tomography (PET). With CT scans, thin, low-energyX-ray beams are swept across a tumor-harboring area to gener-ate a number of detailed cross-sectional images, or “slices.” ForPET scans, patients are injected with glucose marked with aradiotracer such as fluorine-18, which emits positively chargedelectrons, or “positrons.” These positrons interact with sur-rounding tissues, producing photons that can be detected by thePET scanner. Since rapidly growing cancer cells metabolize glu-cose up to 20 times faster than healthy cells, the glucose concen-trates at tumor sites. Cancer cells that have taken up the markedglucose appear on a PET image as a clearly visible bright spot.

Before imaging commences, Sarah’s team has to deal with theproblem of tumor motion during imaging. This is especially crit-ical in cases of lung cancer, where oncologists have tumors mov-ing 1.5 to 2 centimeters (nearly an inch) during respiration.

To cope with this, Sarah’s oncology team will use Varian’sRPM™ Respiratory Gating System to

VA R I A N M E D I C A L S Y S T E M S 2 0 0 2 A N N UA L R E P O RT6

With SmartBeam™ IMRT,Sarah’s oncology team will puther tumor in a crossfire, target-ing it with precisely shapedbeams. They will envelop the

tumor in a sculptedradiation cloud wherethe beams intersect.

These diagnostic images of a lung cancer case were created using a Discovery™ LSscanner from GE Medical Systems, which combines PET and CT scanning in a singlemachine. On the left, a CT image shows anatomical detail, but the cancer is hard to see. In the central PET image, cancer shows up distinctly as a spot on the upperportion of the patient’s lung, but anatomical details are hard to see. On the right, afused PET/CT image can help doctors precisely localize the cancerous tumor. ( C O N T I N U E D O N P A G E 9 )

Cancer is the term commonly used todescribe what is actually not a singledisease but more than 200 individualdisorders, each characterized by thepresence of mutant cells that prolifer-ate through uncontrolled growth anddivision. This uncontrolled prolifera-tion leads to the formation of tumorsthat can invade and take over sur-rounding healthy tissue. Eventually,cancerous cells can metastasize –that is, break away from the primarytumor and, traveling through the circu-latory and lymphatic systems, estab-lish new cancer sites in other areas of the body.

Cancer in its various forms hasplagued humanity dating back almostto the beginning of recorded history.Incidents of breast cancer, for exam-ple, were reported on papyrus manu-scripts by the physicians of ancientEgypt, who at around 1600 B.C. rec-ommended that diseased tissue becauterized. Hieroglyphic inscriptionsnearly a thousand years earlier reportcancers of the stomach and uterus,which were treated by compounds ofbarley, pig ears, and other ingredi-ents. Last year, cancer claimed inexcess of six million lives throughoutthe world. In the United States, about1.3 million Americans are diagnosedwith cancer each year, and about500,000 Americans die annually fromone or more forms of the disease,which is an average of about 1,500people a day. According to theNational Cancer Institute, about one in three Americans will be diagnosedwith cancer during their lifetime. Inthe U.S., one of every four deaths isfrom cancer, according to theAmerican Cancer Society.

About 80 percent of the cancer-related deaths in the United States are caused by only a dozen types of

cancer. In descending order, they arelung, colon, breast, prostate,melanoma, uterine, kidney, pancreat-ic, ovarian, stomach, and cervical.Some forms of cancer can strike eventhe very young, but cancer primarilyaffects adults past age 55, which is why the rate of cancer incidence,particularly that of the four majortypes – lung, colon, breast, andprostate – can be expected to rise asthe “baby-boomer” population ages.

Major advances have been madein identifying oncogenes – geneticmutations that can promote the devel-opment of specific forms of cancer.With the deciphering of the humangenome, the pathway to understand-ing the genetic roots of cancer devel-opment is now open. This has led tospeculation about the potential fordiscovering “cures” through gene

therapy (the deactivation of onco-genes or the activation of genes thatsuppress oncogenes) or throughimmunotherapy (the harnessing of thehuman immune system to geneticallyengineer unique cancer-fighting anti-bodies). Advances along this front in the war against cancer surelyawait, but recent findings by cancerresearchers and molecular biologistssound a cautionary note. Genetics is only one of several risk factors inthe development of cancer. Diet andenvironmental elements can also play important roles. For example,epidemiological studies consistentlyshow that American and WesternEuropean women are five to six timesmore likely to develop breast cancerthan Asian or African women. Andwhile the mutation of a gene calledBRCA1 has been identified as a

source of inherited breast cancer,women with a family history of breastcancer account for no more than sixpercent of all new cases. Such find-ings point to cancer as being causedby a complex interaction of events.This indicates that the prospects fordiscovering a genetic “magic bullet”capable of curing any one of themajor forms of cancer are unlikelyanytime soon.

Nonetheless, cancer patientstoday have more reason than everbefore to take heart, as oncologistshave at their disposal an increasinglysophisticated arsenal of therapeuticweapons. Through the combined firepower of new and improved radia-tion and chemical therapies, andincreased genetic knowledge, thisancient and persistent enemy ofhumankind may finally be tamed. ■

7I M RT: TA RG E T I N G C A N C E R

An Ancient and Persistent Foe

Ages 85+

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The single most important risk factor forcancer is age, according to the NationalCancer Institute. Because the U.S. popu-lation is both growing and aging, even ifrates of cancer remain constant, thenumber of people diagnosed with cancerwill increase.

“If cancer rates follow current patterns,we anticipate a doubling from 1.3 mil-lion people in 2000 to 2.6 million people in 2050 diagnosed with cancer.” – Holly L. Howe, Ph.D., executive director of the North American Association of Central Cancer Registries

P H O T O G R A P H B Y K E N N E T H G A R R E T T , N A T I O N A L G E O G R A P H I C

Chart data derives from NCI’s SEER program (TheSurveillance, Epidemiology, and End Results

(http://seer.cancer.gov), NCI (http://www.nci.nih.gov/)and population projections from the U.S. Census

Bureau (http://www.census.gov).

VA R I A N M E D I C A L S Y S T E M S 2 0 0 2 A N N UA L R E P O RT8

What They’re Saying from the Front

To learn about the effectiveness of aweapon, who better to ask than thosewho have actually used it in battle? In the war against cancer, oncologistswho have used Intensity ModulatedRadiation Therapy (IMRT), the latesttechnology in radiation treatments,have been enthusiastic and stronglysupportive in what they have to say.

Patrick Swift, MD, medical direc-tor for Radiation Oncology at the AltaBates Comprehensive Cancer Centerin Berkeley, California, says he is“hard-pressed” to find any downsidesto IMRT.

“We treated our first patient withIMRT on October 1, 2001, and nowall of our prostate cancer patients areon it,” Swift says. “A safe estimate is that a quarter or possibly a third ofour cancer patient population willsoon be undergoing IMRT and we’vebeen moving carefully and methodi-cally because we want to make surewe’re doing it right.”

Swift says his center is focusing its IMRT efforts on prostate, head and

neck cancers, and a simplified varia-tion on breast cancers. He thinks, how-ever, that IMRT has excellent potentialfor the treatment of brain tumors, par-ticularly brain tumors in children.

“The clear thing you’re trying todo for the kids is control a deadlydisease right now, so you want thedose escalation that IMRT makes possible,” he says. “Plus, you want to prevent side effects, which aretremendously deleterious. So many ofthese kids with posterior fossa tumorsgo deaf now from conventional radia-tion therapy. Treating certain pedi-atric brain tumors with IMRT lowersthe risk of deafness.”

Professor James D. Cox, MD,heads the Division of RadiationOncology at The University of TexasM. D. Anderson Cancer Center. Hesays his staff began using IMRT aboutthree years ago and now treats nearly1,000 patients with the technologyevery year.

“The demand has been outthere,” he says, “but we haven’t had

the resources in terms of physiciststo work with us, so we had a slowerramp-up phase than we would haveliked. We’d seen the progress with3D conformal therapy and how it hadimproved our ability to give higherdoses and decrease side effects innormal tissue. IMRT is a moresophisticated way of achieving boththose goals and it is very much apart of our future.”

Richard Emery, chief medicalphysicist and director of radiationservices at St. Vincent’sComprehensive Cancer Center in NewYork, says their first patient wastreated with IMRT in the spring of2001 and the number has sincegrown to 200, most with cancer ofthe prostate.

“IMRT’s number one upside is thatit lets us treat irregularly shaped tar-gets with high conformality, therebyimproving the therapeutic ratio. Inother words, more dose to the targetand less to the normal tissue,” Emerysays. “IMRT has taken us to another

level of care for our patients. It’sdeeply satisfying to have a technol-ogy that can be curative without theside effects associated with conven-tional therapy.”

The downside to IMRT most oftencited is the added demands on staffin terms of training and preparation.Ted Lawrence, MD, Isadore LampeProfessor of Radiation Oncology atthe University of Michigan, who hasbeen involved with IMRT since thetechnology’s inception, says, “Ifyou’re going to deliver a very confor-mal dose of radiation, you have tohave a very high level of knowledgeas to where the tumor is. Setup andplanning are critical.”

However, the added demands onstaff can deliver a substantial payoff tothe patient, as Lawrence acknowledges.

“IMRT permits us to have dose dis-tributions that were previously impos-sible,” he says. “It has opened upsome extraordinary possibilities andwill let us test whether it will achievea revolution in cancer treatment.” ■

“A safe esti-mate is that aquarter or pos-sibly a third ofour cancerpatient popula-tion will soonbe undergoingIMRT.”

Patrick Swift, MD James Cox, MD Ted Lawrence, MDRichard Emery, MS

“IMRT is amore sophisti-cated way ofachieving ourgoals and it isvery much apart of ourfuture.”

“IMRT per-mits us to havedose distribu-tions that werepreviouslyimpossible. Ithas opened up someextraordinarypossibilities.”

“IMRT lets us treat irregu-larly shapedtumors withhigh confor-mality, therebyimproving thetherapeuticratio.”

synchronize the acquisition of CT and PET images with Sarah’sbreathing cycle. While setting Sarah up for imaging, the team willplace a small plastic cube with reflective markers on Sarah’s chest.A video camera will track the up-and-down movement of thecube. The X-ray beam from the scanner will be synchronizedwith Sarah’s breathing, so that images are taken only when thelung is in the proper position. Varian’s respiratory gating systemwill come into play again when Sarah is treated so that beamdelivery can also be synchronized with her respiratory cycle.

Once Sarah’s oncology team has the images needed to beginplanning her treatment, they will use Varian’s SomaVision™

image processing software to generate three-dimensional viewsof Sarah’s tumor and the surrounding anatomy. The medicalteam will use the software to mark, or “contour,” the 3Dimages, indicating the area to be treated as well as the organsto be protected.

The next step for Sarah’s team will be to prepare her treat-ment plan. At this point, the radiation oncologist will prescribethe ideal radiation dose for the tumor, as well as maximum doselimits for the surrounding healthy tissue. To determine how the dose will be delivered, Sarah’s oncology team uses Varian’sHelios™ inverse treatment planning software. Once the dose levels have been entered, Helios goes to work, using its uniquealgorithms to calculate and devise a detailed treatment plan just as a computer mapping program determines the best routeto a destination. The plan includes beam shapes and exposuretimes as well as electronic instructions that will automate andcontrol the delivery system through 30 to 40 treatment sessions.The next destination for Sarah will be post-planning simulation.

S I M U L AT I O NPrior to actually treating Sarah, her oncology team will first con-duct a dry run using Varian’s new Acuity™ imaging system. Thisenables the oncology team to properly position Sarah on the tableand run through a simulated treatment session.

Proper patient positioning is critical to ensure that the tight-ly focused X-ray beams are targeted accurately. Sarah, like mostradiotherapy patients, will be tattooed with small marks that will be aligned with lasers in the treatment room, to ensure that she is in precisely the right spot in relationship to the radiother-apy machine. The Acuity system, which mimics the treatmentmachine, will enable the medical team to take X-ray images of Sarah in her treatment position, and compare them with reference images from the treatment plan. This will enable the team to fine-tune the plan and verify that it will work as intended.

T H E T R E AT M E N TBefore Sarah begins the next phase of the IMRT process, let’slook at the room in which she will receive her treatment. It meas-ures about 19 feet by 16 feet. In this room is an imposingmachine hovering over a futuristic treatment table or couch thatmight have come from the set of a science fiction film. The

machine is a Clinac® medical linear accelerator (linac) manufac-tured by Varian.

Linacs are critical to the success of IMRT and all other radio-therapy treatments based on X rays. Reaching tumors deep with-in the body requires intense penetration power with X rays atenergies ranging from 4 to 25 million volts (MV). X-ray tubes, suchas those in an X-ray machine being used for diagnostic purposes,typically generate X rays at energies between 60 thousand and 150 thousand volts, far short of what is needed. Linacs, on theother hand, originally developed as a tool for smashing atoms andfirst adapted to medical applications by Varian in 1960, have noproblem meeting the energy requirement.

When the power and intensity of linac X-ray beams are appliedto tumors over a number of treatment sessions, the accumulatedradiation dosage is enough to fatally damage cancerous cells.

To concentrate a dose of radiation on the tumor, Varian out-fits its Clinac with a beam-shaping device called a Millennium™

multi-leaf collimator (MLC). An MLC consists of a computer-controlled array of up to 120 parallel and individually adjustabletungsten bars, or “leaves,” that move to shape the aperturethrough which the radiation passes. It

9I M RT: TA RG E T I N G C A N C E R

The radiation oncologist willprescribe the ideal radiationdose for the tumor as well as

maximum dose limits for the surroundinghealthy tissue.

( C O N T I N U E D O N P A G E 1 1 )

A treatment plan for treating lung cancer. By delivering radiation from a number ofdifferent angles, the beams converge on the tumor, seen here enveloped in a “dosecloud.” The radiation dose is concentrated in the tumor (red) and falls off toward theoutside margins (green).

V A R I A N M E D I C A L S Y S T E M S I L L U S T R A T I O N

I M RT: TA RG E T I N G C A N C E RVA R I A N M E D I C A L S Y S T E M S 2 0 0 2 A N N UA L R E P O RT

A linear accelerator, or “linac,”generates X-ray radiation via theacceleration of electrons that areextracted off the surface of a heatedmetal disk. The electrons are accel-erated through a vacuum chamber

by microwaves to nearly the speedof light, an action that greatlyboosts their energy levels. Thesespeeding electrons bombard a metaltarget, usually tungsten, causing itto emit X rays, which are collimated

into pencil-thin beams that can beadjusted to cover the 4- to 25-mil-lion-volt spread of energies neededto penetrate tumors. The beams areintense, meaning they contain alarge number of X-ray photons.

Varian’s Clinac EX linac can delivera dose rate of X rays up to 600centigray per minute and concen-trate them on an area 2 millimetersin diameter, which is about the sizeof this spot. ●

1Radiation therapy begins with alinear accelerator, which speedselectrons toward a target to generate a radiation beam aimedat the patient’s tumor.

2The multileaf collimator

shapes the radiation beamsand varies their intensity.

This enables physicians totarget higher radiation

doses to the tumor whilesparing healthy tissue.

4A computer system uses three-dimensional images of the tumorand surrounding anatomy to opti-mize a treatment plan for deliver-ing radiation according to theoncologist’s specifications.

3The radiation beam is precisely

tailored to the shape of a patient’stumor. This shape changes as

radiation is delivered from differ-ent angles, so that the tumor is

always targeted and healthy tis-sues are protected.

V A R I A N M E D I C A L S Y S T E M S I L L U S T R A T I O N

How a Linac Works

11I M RT: TA RG E T I N G C A N C E R

will enable Sarah’s oncology team to precisely and automaticallyconform their beams to the shape of the tumor in her lung.

With IMRT, Sarah’s doctors can divide the area being treat-ed into thousands of segments as small as 2.5 mm by 5 mm andgive each one a specified dose. The adjustable leaves of the MLCare used to control not only the shape of the beam, but also theexposure duration for each segment of the tumor, effectively“modulating” the dose within the treatment area. This way,higher doses can be concentrated in some parts of the tumorwhile lower doses can be used in other areas where sensitive tis-sue may need protection.

Now it is time for Sarah’s first treatment session. She entersthe treatment room, which is softly lit and quiet. Her radiationtherapist positions her on the treatment table. A small plasticcube is again placed on her chest so the respiratory gating sys-tem can again compensate for breathing motion. During treat-ment, the system will turn the Clinac’s X-ray beam on and offas the tumor on her lung moves in and out of position. If Sarahcoughs or moves, the beam switches off, further protecting herhealthy tissues.

Sarah is ready. The therapist leaves the room, closes the door,and moves to a computer workstation to administer the treatment.

Inside the room, the Clinac rotates and locks into a fixed posi-tion at the first of the planned beam angles. The beam goes onand the leaves of the MLC begin moving the aperture across thetreatment field, changing its size and shape in order to deliver theprescribed dose. This “sliding window” approach to IMRT putsthe leaves of the MLC in continuous motion while the beam is onand yet maintains a pattern that conforms to the 3D shape andsize of the tumor.

Sarah hears a low humming noise but feels nothing. The Clinacrotates and delivers beams from several angles until the treatmentis completed.

During treatment, Sarah’s medical team uses Varian’sPortalVision™ device on the linac to instantly capture X-rayimages of Sarah’s anatomy as viewed through the beam aperture.By using Varian’s image-processing software to compare thePortalVision views on a computer monitor with diagnostic imagesand the treatment plan, the team is able to verify treatment accu-racy and make any adjustments that might be needed in her posi-tion or the plan for future sessions.

It is 10:00 a.m. when Sarah enters the IMRT treatment room.Ten minutes later, her placement and immobilization on the posi-tioning couch are completed and her treatment begins. Five min-utes later, the session is complete. Sarah is free to return home toher family and resume her daily activities.

Sarah will have to undergo multiple treatment sessions, on aMonday through Friday schedule, over a period of weeks.Otherwise her life should not be disrupted. What is the outcomeof her IMRT treatment? Hopefully, follow-up tests will show thatSarah’s tumor has been functionally eliminated. She will have tobe re-scanned, perhaps six months after treatment has been com-pleted, for the possible appearance of new lesions and to be sure

that all of the original tumor was destroyed. If either situationshould prove to be the case, she will have to undergo anotherround of treatment and the process will continue until all thelesions are gone. In the end, however, the likelihood is good thatshe will be cured of her lung cancer.

Is this too rosy a scenario to project for Sarah? No, nor wouldit have been had our patient been George, 57, diagnosed withprostate cancer, or Robin, 54, diagnosed with breast cancer, orBill, 63, who had cancer of the head and neck. IMRT is beingused to treat all of these major cancers. According to the earlyclinical results and the testimony of oncologists who are at theforefront in the fight against cancer, it can be highly effective.For example, in a study conducted by

Sarah’s doctors can divide thearea being treated into thousandsof small segments. Higher dosescan be concentrated in someparts of the tumor while lower

doses can be used inareas where sensitive tis-sue may need protection.

A beam of high-energy photons strikes a cancer cell. In radiotherapy, the aim is tobombard cancer cells with highly energetic photons (X rays), which interact withwater molecules in the cells to create ions or “free radicals” that damage DNA.Healthy cells can repair themselves to a degree and continue to metabolize. However,cancer cells often have faulty repair mechanisms and thus lose the ability to repli-cate. Repeated exposure to high energy X rays eventually impairs or kills all cancercells, eradicating the tumor.

I L L U S T R A T I O N B Y B R I A N S P A T O L A , G E O R G E R E T S E C K A N D B R Y A N C H R I S T I E

( C O N T I N U E D O N P A G E 1 2 )

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researchers at Memorial Sloan-Kettering Cancer Center in NewYork between April 1996 and January 2001, 772 patients withprostate cancer were treated with IMRT at fairly high dosesmade possible by IMRT’s precision. The 3-year relapse-free sur-vival rates for favorable, intermediate, and unfavorable riskgroup patients were 92 percent, 86 percent, and 81 percent,respectively. Compare that success rate with comparable rates ofonly 75 percent, 55 percent, and 35 percent in an earlier studyin which prostate cancer patients were given a more conven-tional treatment at a lower dose.

Sloan-Kettering’s chief of radiation oncology, StevenLeibel, MD, has said, “IMRT is revolutionary in its ability tomodulate the radiation beam. It can do what standard confor-mal therapy can't. IMRT has become the standard mode ofconformal treatment delivery for localized prostate cancertreatment at our institution.”

Leibel says the Sloan-Kettering Cancer Center, which treat-ed its first patient with IMRT in 1995, now treats roughly aquarter of their patients with the technology, approximately1,000 patients a year. George T.Y. Chen, Ph.D., head of radia-tion physics, Department of Radiation Oncology atMassachusetts General Hospital, and professor at HarvardMedical School, says his department, which began using IMRTa couple of years ago, is now using IMRT to treat between 10and 15 percent of their patients.

“IMRT is in its infancy and so we don’t know, for example,what the 10-year success rate will be,” Chen has said. “In somecases, such as cancer of the head and neck, the impact is obvi-ous. It provides the opportunity to spare critical structures suchas the parotid gland and this enables us to reduce the side effectsof radiation. It’s a technological revolution that’s really chang-ing radiotherapy. The oncology community is very excitedabout it.”

The opinions of Leibel and Chen have been echoed by otherleading oncologists across the nation (see “What They’re Sayingfrom the Front” on page 8).

Although less than ten percent of the world’s nearly 5,500radiotherapy centers for cancer treatment are currently offeringIMRT to their patients, the numbers using Varian’s SmartBeamIMRT climbed from one in 1995, to 40 in 2000, to 98 in 2001,

to an estimated 200 by the end of 2002. Expectations are forcontinued expansion around the world.

The IMRT procedures being implemented at radiotherapycenters now are a first-generation technology. Already in theworks as a next evolutionary step is a Dynamic Targeting™ ini-tiative that will eventually equip Clinac linear acceleratorswith an X-ray-based on-board imaging system. The aim ofthis research initiative is to attach Varian’s latest amorphous-silicon flat-panel image detector directly to the Clinac on apair of robotic arms that move relative to one another. Thegoal is to provide oncology teams with images and motiontracking capabilities that can help them guide the beam duringa treatment session.

Varian unveiled a research prototype of this next step inDynamic Targeting at the 2002 American Society of TherapeuticRadiology and Oncology (ASTRO) meeting.

As we move into the new millennium, humans for the firsttime ever have the technology at hand with which they can confront their ancient enemy and bring it under manageablecontrol. The idea of cancer being transformed from a life-threat-ening condition to a manageable disease is no longer wildly spec-ulative science fiction but is tantalizingly close to becomingscientific fact. ■

Already in the works is aDynamic Targeting™ initiativethat will provide real-time high-resolution images for

tumor localization andmotion tracking duringtreatment.

The Clinac® digital medical linear accelerator delivers the most advanced forms ofradiotherapy, including IMRT, to eradicate tumors.

13I M RT: TA RG E T I N G C A N C E R

The Radiation Oncology Department of the FutureV I E W P O I N T

An artist’s rendition of a medical linear accelerator with an on-board imaging system consisting of an X-ray tube and an amorphoussilicon flat-panel image detector on a pair of robotic arms. Clinicians envision using on-board imaging to verify tumor position andadjust for movement during treatment.

Research prototype only; not available for commercial sale.

With the advent of IMRT and otheradvanced forms of radiotherapy,imaging has moved to center stage inthe field of radiation oncology. Thesenew treatment approaches make itpossible for doctors to plan and deliv-er radiation doses that are preciselytailored to each patient’s anatomy andtumor. Consequently, clinicians needmuch more detailed information aboutthe tumors being treated – informa-tion that we can get with the latestadvances in imaging technology.Without images that can give doctorsthree-dimensional views of the tumorand the surrounding healthy tissues,these treatment approaches would notbe possible.

DIAGNOSTIC IMAGINGImaging plays a role at every step inthe radiation oncology process, fromearliest diagnosis to treatment verifi-cation. The radiation oncologydepartment of the future will dependon diverse imaging modalities evenmore than it does today. Currently, for

example, Computed Tomography (CT) and sometimes MagneticResonance (MR) imaging show thestructure of a patient’s internalanatomy and help the oncologist todetermine the boundaries of a tumor.Very recently, however, doctors havebegun to augment what they knowabout tumors using imaging tech-niques like Positron EmissionTomography (PET). PET imaging provides them with metabolic infor-mation about the location, size, andaggressiveness of the tumors theyare treating. Better diagnostic imag-ing improves the utility of techniqueslike IMRT for delivering escalateddoses of radiation to the most activeparts of a tumor, as well as to anyareas of early spread. In the future,we may see doctors using additionalbiological imaging techniques likeSingle Photon Emission ComputerTomography (SPECT) and MagneticResonance Spectroscopy (MRS) tolearn even more about the nature ofthe tumors they are treating.

ON-BOARD IMAGINGImaging is also increasingly playinga role in treatment delivery.Radiation oncologists use severalforms of imaging to help them accu-rately target the tumor during treat-ment. Present-day tools includeelectronic portal imaging, a technol-ogy that uses the treatment beam tocapture images of irradiated areas to make sure that beams are beingdelivered as planned. In the radia-tion oncology department of thefuture, medical linear acceleratorswill be equipped with on-boardimaging — special X-ray systemsthat provide high-resolution imagesfor verifying tumor position andtracking their motion during treat-ment. These new machines will usehigh-energy megavoltage beams totreat and kill tumors, and low-energykilovoltage beams to acquire clearimages that can be used to guide the treatment beam. In this scenario,doctors will need software thatadjusts radiation therapy in a

real-time response to tumor motioncaused by a patient’s breathing. Thissoftware will interpret the imagescoming from the on-board imagingsystem and coordinate the treatmentdelivery device so that it follows thetumor as it moves.

These developments, takentogether, have the potential to simul-taneously achieve unparalleled tumor control and spare the maximumamount of healthy tissue, opening the possibility of using higher doseswithin fewer treatment sessions. At Varian Medical Systems, we areactively developing an integratedsuite of products that transform theradiation oncology department intoan image-guided treatment center.Image-guided radiotherapy will offerus improved precision, and that willmake it possible for radiation oncolo-gists to treat a broader range of cancer cases. ■

By Timothy E. Guertin,

President, Oncology Systems

“Image-guidedradiotherapywill make itpossible totreat a broaderrange ofcancer cases.”

Timothy E. Guertin

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or monitor the gastrointestinal tract to diagnose conditions thatrequire treatment. Better still, doctors are using this imaging capa-bility during treatment to see exactly where to target canceroustumors with radiotherapy beams or where to place the instrumentsand devices that will cure their patients.

The value of this real-time X-ray vision goes beyond medicineto many other scenarios, including industrial inspections in whichtechnicians take instant snapshots of the internal structures ofobjects such as electronic circuits and mechanical parts.

While progress has been rapid in recent years, companies likeVarian Medical Systems are now using solid-state digital technol-ogy in the form of amorphous silicon flat-panel X-ray detectors toachieve even more dramatic improvements that will extend theutility of digital X-ray imaging systems. These panels obtaininstant high-resolution “still” X-ray images (radiographs) as well as“live,” or moving, X-ray images (fluoroscopy) for display on com-puter monitors or storage in electronic archives.

Today, most medical centers are still hampered by a continuingreliance on film for obtaining, displaying, and storing radiograph-ic X-ray images. In the digital age, this technological relic of theanalog age is viewed as inefficient; it requires processing chemicals,

storage space, and perhaps most important – time. Other centersare digitizing X-ray images using computed radiography, whichrequires several time-consuming steps before an image can beviewed. Furthermore, many centers rely entirely on separate sys-tems for obtaining fluoroscopic images.

Hospitals have been generating live fluoroscopic images foryears, using X-ray systems equipped with image-intensifier tubes.This now-common approach, which has been evolving since thefirst image intensifiers were introduced in the 1960s, has resultedin an annual multi-million dollar image-intensifier tube industry.The technology has some drawbacks, however. Image-intensifiertubes generate circular images that suffer from a loss of resolutionat their periphery. Furthermore, the up-to-100-pound heft andbarrel-shaped bulkiness of these tubes require large supports thatare cumbersome to work around when doctors are treatingpatients. This can be particularly difficult in trauma centers, forinstance, or in surgery, where doctors need very close access totheir patients and the ability to maneuver around them.

By comparison, flat-panel imagers are 90 percent smaller andweigh 60 percent less than image-intensifier tubes. These newimagers cover the same anatomical area as image-intensifier tubes,but present a uniform, undistorted, high-resolution imagethroughout a rectangular field of view with superior contrast res-olution. Flat-panel imagers exhibit smaller objects in greater detailthan is possible with image intensifiers.

H O W F L AT- PA N E L X - R AY I M A G E R S W O R KVarian first introduced its flat-panel detectors to the medical worldin 1998 with its VIP-9 system, making use of technology devel-oped a few years earlier by Xerox Corporation. In this approach,the flat-panel detector consists of a sheet of glass covered with alayer of silicon that is in an amorphous, or filmlike, state. If youreyes could magnify this layer of silicon film a thousand times,you’d see that it has been imprinted with millions of transistors

Digital technology has revolutionized our lives. We are collecting, storing, analyzing, and usingmore and more information at a faster and faster pace. X-ray imaging is no exception,whether it is for medical diagnosis, security screening, or industrial inspection. The benefits ofdigital X-ray imaging are clear. Doctors are already using it to see “real-time” movies of theirpatients’ anatomy and physiology. They can watch blood flowing through vessels and into organs

Companies like VarianMedical Systems are usingsolid state digital technology toachieve even more dramaticimprovements that will extendthe utility of digital X-ray

imagingsystems.

Digital X-RayImaging

LOOKING

15D I G I TA L X - R AY I M AG I N G

P H O T O G R A P H B Y J I M K A R A G E O R G E

INTO THE FUTURE

arranged in a highly ordered array, like the grid on a sheet ofgraph paper.

Each of these thin-film transistors (TFTs) is attached to alight-absorbing photodiode making up an individual pixel (pic-ture element). Photons striking the photodiode are convertedinto carriers of an electrical charge, either negatively chargedelectrons, or positively charged holes (vacant energy spaces thatact as if they were positively charged electrons). Since the num-ber of charge carriers produced will vary with the intensity ofincoming light photons, an electrical pattern is created that can be swiftly read and interpreted by a computer to produce adigital image.

Although silicon has outstanding electronic properties, it isnot a particularly good absorber of X-ray photons. For this rea-son, Varian, like some other flat-panel detector manufacturers,takes an indirect approach to creating electrical charge carriers.X rays first impinge upon scintillators made from either gado-linium oxysulfide or cesium-iodide. The scintillators absorb theX rays and convert them into visible light photons that then passonto the photodiode array. Because cesium-iodide is such anexcellent absorber of X rays, and converts them to visible lightphotons at energies that amorphous silicon is best able to con-vert to charge carriers, the combination of these two materialshas the highest-rated Detective Quantum Efficiency (DQE) inuse today. DQE is the yardstick by which the performance ofphotoconductors is measured. A high DQE rating means thatsuperior images can be obtained with low dosages of X rays.

R E A L - T I M E I M A G I N GVarian’s PaxScan® flat-panel detectors can acquire high-resolu-tion radiographs at up to seven frames per second (FPS) andmoving fluoroscopic images at up to 30 FPS. The PaxScan®

4030A also has been incorporated into Varian’s radiotherapyproducts, including its Acuity™ and PortalVision™ systems (seeIMRT: Targeting Cancer on page 4) that enable radiation oncol-ogy teams to properly position patients, target tumors, and veri-fy treatment accuracy. Acuity’s flat-panel imager, for example,can be used during brachytherapy procedures to image cancerpatients, develop treatment plans, and precisely place radioactiveisotopes within tumors.

As a new technology, the flat-panel imagers remain relativelyexpensive compared to the more traditional X-ray imaging sys-tems. However, the technology can be expected to become morecost-competitive as more users move to take advantage of the sub-stantial cost and time savings offered by digital X-ray imaging.

Varian’s engineers have been working with several imagingequipment manufacturers to incorporate flat-panel detectors intoa variety of different imaging systems. The PaxScan panel hasalready been incorporated into commercially available systemsfor gastrointestinal and vascular diagnostic procedures. Varian’sflat-panel detectors are also being investigated for use in ortho-dontic applications. It is hoped that they will play a role duringsurgery by generating images that can help to guide doctors asthey work. The flat-panel imagers also have potential as a nonin-vasive means of evaluating the structural integrity of bridges,rocket motors, and shipping containers, as well as the quality ofmultilayer microchips.

New market opportunities for flat-panel detectors have grownsignificantly in the past year, according to Chuck Blouir, marketingmanager for Varian’s imaging products. “We are still finding newapplications for our digital flat-panel technology in medical, indus-trial, and homeland security markets where speed, image quality,and cost-efficiency are essential. I fully expect this to become thenew standard in X-ray imaging.” ■

VA R I A N M E D I C A L S Y S T E M S 2 0 0 2 A N N UA L R E P O RT16

Flat panels present a uniform,undistorted, high-resolutionimage throughout the rectan-gular field of view. With superiorcontrast resolution, they showsmaller objects in greater detailthan is possible with imageintensifiers.

I L L U S T R A T I O N B Y G E O R G E R E T S E C K A N D B R Y A N C H R I S T I E

With indirect digital X-ray imaging, an X-ray tube sends a beam of X-ray photonsthrough a target. X-ray photons not absorbed by the target strike a layer of scintillatingmaterial that converts them into visible light photons. These photons then strike anarray of photodiodes which converts them into electrons that can activate the pixels ina layer of amorphous silicon. The activated pixels generate electronic data that a com-puter can convert into a high-quality image of the target, which is then displayed on acomputer monitor.

ElectronicImage Data

Electrons

Visible Light Photons

X-ray Photons

Photo Diodes

Scintillation Layer

Target

X-ray Tube

Amorphous Silicon

17D I G I TA L X - R AY I M AG I N G

The Electromagnetic Spectrum

We “see” images through light – theradiation emitted by electrons whenthey lose energy. This radiation iscarried in massless particles calledphotons, and travels in waves thatmove through a vacuum at a con-stant speed of 186,282 miles persecond. Scientists speak about thedual nature of light because itbehaves both as a stream of photonparticles and as the rippling motionof pure energy waves through space.Although most of us think of light interms of what we see with our eyes,scientists consider light in a broadersense, as electromagnetic radiation.

Electromagnetic radiation is cat-egorized either according to theenergy of its photons, or by the fre-quency or length of its waves. Thisspectrum of electromagnetic radia-

tion extends from radio waves, withenergies of less than a billionth ofan electron volt per photon andwavelengths measuring more than10,000 kilometers (6,220 miles), togamma rays, with energies topping abillion electron volts per photon andwavelengths of less than 10 tril-lionths of a meter. Visible light, theelectromagnetic radiation that canbe seen with our eyes, constitutesless than a millionth of one percentof the electromagnetic spectrum.

Depending upon the energy andwavelength of the incoming electro-magnetic radiation, matter can eitherbe transparent, or it can absorb orreflect light back. The surface of thehuman body absorbs and reradiatesphotons at energies ranging between1.61 and 3.18 electron volts. This is

the visible light region of the electro-magnetic spectrum and explains whywe can see people but cannot seebeneath their skin. To look beneaththe skin at the body’s internal struc-ture you need photons at energieshigh enough to penetrate tissue andbone. Photons at energies between20 thousand and 150 electron voltsare ideal for diagnostic imaging pur-poses. These photons are X rays.

Diagnostic imaging depends notonly upon the ability of photons topenetrate deep below the skin butalso upon their ability to “see,” orresolve, small details. This is a func-tion of wavelength. For example, visible light waves, ranging in wave-lengths from 700 nanometers (red) to400 nanometers (violet), are simplytoo large to ever resolve images of

structures the size of a typical proteinmolecule. No matter how high themagnification, visible light waveswould pass over such molecules unaf-fected. It would be like trying to deter-mine the size and shape of a tennisball by observing its impact on themovement of ocean waves.

X rays have wavelengths severalthousand times shorter, some evenless than an angstrom, which is theunit of scale for measuring atoms.This makes X-ray photons ideal forimaging the structures of atoms com-mon in the human body: hydrogen,carbon, oxygen, and calcium. X raysare also ideal for imaging nitrogen,which is a key component, along withhydrogen, carbon, and oxygen, ofmost chemical explosives. ■

I L L U S T R A T I O N B Y A N D R É S E I B E L

W A V E L E N G T H

E N E R G Y

RA

DI O

EVA

WOR

CIM

DERARFNI

V I S I B L E L I G H T

U V

X- R

AY

DiagnosticX Rays

20-150kVp

TherapeuticX Rays

1.25MV-25MV

Non-DestructiveTesting/Cargo

Screening X Rays50kVp-15MV

X Rays and Homeland Security

Since the tragic events of September 11, 2001, anyone who has been to an airport is awarethat security efforts in the U.S. have been greatly intensified. However, according to manyexperts, terrorist threats to homeland security are equally likely to come by way of the sea.The U.S. Customs Service reports that some 6 million cargo containers arrive through U.S.seaports every year. Ninety percent of the trade goods brought into the U.S. each year – some2 billion metric tons worth – enter through the country’s361 seaports. Presently, less than 2 percent of these con-tainers are ever opened and inspected by CustomsService officials.

19N OW H E R E TO H I D E

These trailer-sized, steel-walled cargo containers are typicallysealed in foreign ports and not opened again until delivered bytrucks to points all across the United States. It’s not hard toimagine these containers being used for smuggling contraband– even a weapon of mass destruction. To physically open eachcontainer and extract and inspect the contents by hand wouldbe too time-consuming and unrealistic. Clearly, what’s needed issome means of searching the containers quickly and thorough-ly without disrupting the flow of goods. An X-ray imaging sys-tem like Varian Medical Systems’ Linatron® linear accelerator isan excellent candidate for the job. It can generate steel-piercingX rays that “see” through container walls and allow contrabandnowhere to hide.

“The challenge is to provide customs officials with a solutionthat lets them look inside these containers quickly and efficient-ly. You need to generate enough energy to penetrate up to 440mm (17 inches) of solid steel and produce high-quality imagesthat show even small objects in fine detail,” says Lester Boeh,vice president for Varian’s Security and Inspection Group. “TheLinatron meets those specifications. It has already been incor-porated into cargo screening systems all over the world, butthere are comparatively few in the U.S. The impact ofSeptember 11 could change all that for the U.S. and manynations engaged in international trade.”

Varian’s Linatron, which generates high-energy X-ray beams,has already been incorporated into cargo inspection systems incountries like Australia, Belgium, China, France, Germany,Ghana, Indonesia, Israel, Japan, Korea, Mexico, Saudi Arabia,

Taiwan, Turkey, and the U.K. Japan operates multiple units at its six busiest ports; the U.K. at more than a dozen. Eurotunnel uses the technology to scan freight cars that pass between France and the U.K.

I M A G I N G T H E C O N T E N T S O F A C A R G O C O N TA I N E RThe Linatron has been incorporated into fixed-site andmobile cargo scanning systems built by companies like ARA-COR, Heimann Systems, L3, and RapiScan. These systemswork like a giant airport baggage screening system. They usethe high-energy X rays generated by the Linatron to send abeam of photons through a cargo container. The photons areabsorbed and scattered in varying amounts by the materials intheir path, depending on their densities. On the far side of thecargo container, a detector array collects and records the pho-tons that make it through unabsorbed, generating an elec-tronic signal that is translated into an image. The image,which shows the container’s contents, can be viewed on amonitor. A Linatron-based cargo screening system can scan afull container in less than three minutes. Fixed-site systemsare built into garage-like facilities, and trucks carrying cargocontainers are moved through these facilities the way cars are moved through a carwash. The truck passes between theLinatron X-ray beam and the photon detector. Electronicimages are captured and transmitted to a computer monitorat an operator’s station.

For customers who need to move a cargo inspection systemfrom site to site, mobile systems can be mounted on trucks.

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The need for improved securityextends beyond cargo screening to a whole new set of security needs at airports. For years, carry-on bagshave been screened, but checkedluggage has been loaded onto air-planes without screening. As of the end of 2002, however, the U.S. Federalization Security Act is requiring that all checked bags be screened by devices that candetect explosives.

Screening luggage for explosivesposes unique challenges. Currentscreening systems for carry-on bagsare not sensitive enough to do the job. These systems use stationary lowenergy X-ray tubes and line-by-linescanning to show two-dimensionalshapes. They detect a knife within apile of clothes, for example.

Detecting explosives, however, isharder; it requires the ability to dis-tinguish materials of different densi-ties as well as their shapes. Andsince an immense number of bagspass through the nation’s airports in asingle day, they must work quickly.

To tackle the job, the securityindustry has turned to CT scanning,which uses higher energymetal/ceramic X-ray tubes that spinaround the luggage at two revolutionsper second. They can detect and dif-ferentiate between the densities of

scanned materials. They operatewithin explosive detection systems(EDS) that generate three-dimensionalcolor-coded images highlighting sus-picious items. EDS tubes representsome of the latest advances in X-raytube technology.

X rays are a form of high energylight with very short wavelengths thatmake it possible for them to passthrough solid objects. They are creat-ed by accelerating electrons to a veryhigh speed and driving them into a

metal target. The resulting subatomiccollisions release energy in the formof X rays (1%) and heat (99%).

In an X-ray tube, electrical energyis applied to a filament, heating it upto white-hot temperatures so that it‘boils off’ electrons. To acceleratethese electrons, the tube is equippedwith a cathode (a negative electrode)and an anode (a positive electrode).The application of a high voltageacross the positive and negative elec-trodes creates a differential that

causes the electrons to speedtowards the anode at a very highvelocity. This assembly is housedwithin a vacuum, which eliminatesresistance so that the electrons canattain higher speeds by acceleratingmore rapidly.

The cathode incorporates a focus-ing cup to concentrate the electronstream and its kinetic energy onto asmall focal spot, or target, within theanode. This target is usually made oftungsten or some other metal that canwithstand very high temperatures.

The collision of electrons with thetungsten unleashes X rays that arechanneled out of the tube through asmall window or aperture. The veloci-ty achieved by the electrons beforethey strike the anode is directly pro-portional to the amount and penetra-tion power of the resulting X rays.

EDS series tubes operate at veryhigh electrical voltages — betweentwo and four times the voltage usedin systems for screening carry-on luggage. This results in the highercontrast resolution needed for differ-entiating between materials anddetecting explosives.

Varian’s new line of EDS X-ray tubesare engineered to meet the specifica-tions for CT based explosive detectionsystems that are now being installedat more than 400 U.S. airports. ■

New Looks for Airport Security

Similarly, it is also necessary to scan air cargo. Each year, morethan 30,000 tons of air freight are transported in cargo and com-mercial aircraft in the U.S. and virtually none of it is ever inspect-ed. The Linatron M is an ideal solution to this problem and isalready working in airports outside the U.S.

P E N E T R AT I O N , C O N T R A S T, R E S O L U T I O NThree basic physics criteria are used to measure the effectivenessof any imaging system: penetration, contrast, and resolution. Allthree are related to the level of energy – and hence the number ofphotons – sent through whatever is being scanned. A Linatron-based screening system generates higher energy X rays than com-peting gamma-based systems.

Penetration is probably foremost of the three criteria for cargoscreening. The inspection obviously fails if the imaging photonslack the energy to punch through a container’s thick steel walls.The key to penetration is photon energy – the more energetic, the

deeper the photons penetrate into a material. Steel is the bar bywhich the penetration capabilities of an imaging technique aremeasured. Varian’s Linatron can generate X rays at energies of 9million electron volts (MeV). That’s enough power to pass through440 millimeters (17 inches) of solid steel and still provide enoughenergy to produce a high-contrast image – a critical issue for scan-ning big trucks and containers.

Says Boeh, “Without full penetration of a cargo container andits contents, too much can be missed.”

Contrast sensitivity, the second important criterion for cargoscreening, is extremely important for distinguishing between itemsinside a container. Imaging experts say that the higher the contrastsensitivity, the greater the chances for detecting contraband.Linatron-based systems have proven to be ten times more contrastsensitive than other systems.

“The objective of nonintrusive screening is to image the con-tents of a cargo container with enough clarity to make a decision

I N V I S I O N T E C H N O L O G I E S X - R A Y I M A G E

21N OW H E R E TO H I D E

An X-ray image reveals the presence of a stolen car hidden inside a truck behinda pile of other items. The stolen car contains some stolen television sets in the

back seat and trunk. There are also bottles of alcohol hidden in a stack of materi-al behind the car. The image was created with a Heimann Cargo Vision X-ray

Inspection System using a Linatron®. This customsimage was captured at an undisclosed

port in Africa.

about the contents,” says Jim Johnson, general manager for VarianIndustrial Products.

The third criterion, resolution, is a measurement of the abili-ty to see spatial details in an image. If you are looking for hun-dreds of pounds of drugs, just knowing there’s something largeand unexpected inside the container is enough. However, ifyou’re looking for nuclear weapons components, which can besurprisingly small, you want the best resolution you can get.While resolution depends to a large degree on the quality of thedetector that is collecting the imaging photons, the more photonsthat penetrate the cargo’s interior, the better your chances are ofobtaining high resolution. Again, the advantage falls squarely tolinac-generated X rays.

In addition to the three main criteria, several other factorsinvolved in imaging give linac-generated high-energy X rays a dis-tinct technological advantage for use in cargo screening. Varian’sLinatrons can also provide dual views by sending in two perpendi-cular beams to help overcome the problem of a lighter materialbeing shadowed behind a denser material. And thanks to the highenergy and photon output of the Linatron, images can be obtainedvery quickly – an important consideration for a busy port.

“Before September 11, the U.S. Customs Service was mostlyinterested in screening cargo containers to find illegal drugs. Nowtheir primary concern is finding weapons of mass destruction,”Boeh explains. “For this task, there does not seem to be any com-petitive technology on the horizon better than high-energy X rays.”

Numerous customs services, both in Europe and Asia, haveinstalled cargo-screening systems that use Varian Linatrons to gen-erate X rays. They are successfully finding illegal drugs, weapons,and other contraband. According to Boeh, many of these govern-ments have found that the ability to verify manifests, find deliber-ate falsifications, and levy taxes on the undeclared contentsgenerates enough revenue to pay for the inspection systems.

N O N - D E S T R U C T I V E T E S T I N GVarian’s Linatron technology is also useful in other forms of non-destructive testing. Highway engineers use a portable version

called the Linatron MP to test the structural integrity of large steeland concrete structures like bridges and overpasses. A major man-ufacturer of jet engines is using the Linatron M with a Varian flat-panel image detector to inspect turbine blades.

“They bought the Linatron to replace a kilovoltage (kV)imaging system,” says Boeh. “They needed a system that couldpenetrate the larger cross-section of the new blades. Using theprevious kV system was taking them 30 minutes to scan a tur-bine blade for structural flaws. With the Linatron, they havereduced this to about 30 seconds. In addition, we were able todesign a compact shielding package so that the system fit intotheir existing facility.”

Varian’s Linatron has also been used to inspect large castings,rocket motors, and pressure vessels – large metal containers thatcarry pressurized contents. The technology enables engineers tofind tiny cracks and flaws. “These are not things that you wantto see fail,” says Johnson.

S T E R I L I Z AT I O NThe Linatron technology has additional applications in steriliza-tion. It is being used in medical settings to irradiate and sterilizemedical products. A system in Hawaii is used to treat papayas,which are subject to a federal fruit-fly quarantine and cannot bedistributed on the U.S. mainland without treatment. Unlike othersolutions that Hawaiian growers had tried, including the use ofchemicals and heat, the Linatron solution does not adverselyimpact the appearance or nutritional value of the fruit, or dam-age the environment, according to the grower, Hawaii Pride LLC.Food irradiation can be used to instantly eliminate the threat ofharmful food-borne pathogens such as E. coli, listeria, and sal-monella in meat and poultry, as well as fruits and vegetables, with-out changing their texture or taste.

“The Linatron enables us to harness and focus energy, andput it to work in a number of different ways,” says Boeh. “Highenergy X rays are very useful for inspection and for steriliza-tion. There are a lot of as-yet-untapped potential applicationsfor this technology.” ■

VA R I A N M E D I C A L S Y S T E M S 2 0 0 2 A N N UA L R E P O RT22

O N C O L O G Y S Y S T E M S(Dollars in Millions) 02 01 00

Net Orders $825 $699 $597Sales – as Reported $725 $614 $534Sales – Pro Forma(1) n/a n/a $522Pretax Earnings – as Reported $159 $113 $ 93Pretax Earnings – Pro Forma(1) n/a n/a $ 88Pretax Earnings as % of Sales – as Reported 22.0% 18.5% 17.5%Pretax Earnings as % of Sales – Pro Forma(1) n/a n/a 16.8%Backlog – as Reported $650 $550 $424Backlog – Pro Forma(1) n/a n/a $464Capital Expenditures $ 14 $ 8 $ 8Depreciation & Amortization $ 8 $ 10 $ 9

accelerators and the broadest range ofaccessories and interconnected softwaretools for planning and delivering the mostsophisticated radiation treatments avail-able to cancer patients. Oncology Systemsworks closely with health care profession-als in community clinics, hospitals, anduniversities around the world to improvecancer outcomes. Thousands of patientsare treated daily on Varian systems. Thebusiness unit also supplies linear accelera-tors and components for industrial inspec-tion, cargo screening, and sterilization.

2 0 0 2 H I G H L I G H T S Oncology Systems againset records for annual net orders, sales,and operating earnings. It expanded itsshare of the worldwide radiation oncolo-gy market and became a leader in thetreatment planning software market. Thebusiness also introduced the Acuity™

imaging system, a new product that forthe first time integrates planning, simula-tion, and verification for treating cancerwith radiation. The Acuity system pairsan X-ray tube and an amorphous siliconflat panel from Varian’s X-Ray Productsbusiness to generate the high-resolutionimages needed for ultra-precise radiother-apy, including SmartBeam™ IMRT. As ofthe end of the fiscal year, Varian hadequipped 840 radiation oncology clinicsfor SmartBeam IMRT and the number ofclinics treating patients with SmartBeamIMRT had jumped to 188 – more thandouble the number that were offering thistreatment last year.

O U T L O O K A record backlog and continu-ing growth in net orders point to thepotential of another year of stronggrowth for Oncology Systems. Growthwill continue to be driven by demand forIMRT-ready systems. More than 90 per-

cent of respondents to a recent survey ofradiation oncology centers indicated thatthey are either offering or planning tooffer patients IMRT within the nextthree years. Product development initia-tives will focus on software upgrades thatstreamline all forms of radiotherapy,including IMRT, and on new “on-board” imaging capabilities that willcontinue to enhance the precision ofradiotherapy.

P R O D U C T S A N D S E R V I C E S

Oncology systems:

■■ Clinac® medical linear accelerators ■■ Millennium™ MLC multileaf

collimators ■■ Exact™ treatment couches ■■ Acuity™ treatment planning/

simulation/verification systems■■ CadPlan PLUS™/ Helios™ / Eclipse™

treatment planning software ■■ Vision™ radiotherapy image

management software ■■ PortalVision™ imaging systems ■■ VARiS® clinical/data

management software ■■ RPM™ respiratory gating systems■■ Customer service and product support

Industrial inspection and security systems

■■ Linatron® linear accelerators

FA C I L I T I E S

■■ Baden, Switzerland■■ Buc, France■■ Crawley, England■■ Helsinki, Finland■■ Las Vegas, Nevada■■ Milpitas, California■■ Palo Alto, California (headquarters)■■ Tokyo, Japan■■ Zug, Switzerland

Varian Oncology Systems is theworld’s leading supplier of radiother-

apy systems for treating cancer. Its inte-grated medical systems include linear

ONCOLOGY SYSTEMS

The new Acuity imaging system for treatment planning,simulation, and verification.

(1) FY00 is presented on a pro forma basis (assuming SAB 101 was applied retroactive to prior periods) for comparison purposes.

23BU S I N E S S OV E RV I E W S

X - R AY P R O D U C T S(Dollars in Millions) 02 01 00

Net Orders $123 $134 $147Sales – as Reported $122 $139 $136Pretax Earnings $ 12 $ 18 $ 18Pretax Earnings as % of Sales 10.2% 13.0% 13.1%Backlog $ 36 $ 36 $ 40Capital Expenditures $ 4 $ 4 $ 6Depreciation & Amortization $ 7 $ 7 $ 7

diagnostics and industrial inspection aswell as distributors of replacement tubes.This business provides the industry’sbroadest selection of X-ray tubes expresslydesigned for the most advanced diagnosticand inspection applications, including CTscanning, radiography, mammography,and baggage screening. X-Ray Productsdevelops and manufactures tubes to meetevolving requirements for high-resolutionimaging, faster patient throughput, longertube life, smaller dimensions, and greatercost efficiency. X-Ray Products also sup-plies a new line of amorphous silicon flat-panel image detectors for medical andindustrial applications.

2 0 0 2 H I G H L I G H T S X-Ray Products createdseveral new business opportunities duringthe year. The group entered the securitymarket, developing and securing ordersfrom two customers for a new line of bag-gage screening tubes in record time.Engineers also developed a newcost-competitive replacement tube for aline of CT scanners. The business securednew supply agreements with two majorcustomers. It increased sales of flat-panelimagers and initiated production of a new

P R O D U C T S A N D S E R V I C E S

X-ray tubes for:

■■ All major segments of the CT scanning market

■■ Radiographic and fluoroscopic imaging■■ Mammography■■ Angiographic imaging■■ Scientific instrumentation■■ Airport baggage screening systems

PaxScan® amorphous silicon

flat-panel image detectors for:

■■ Industrial inspection■■ Medical diagnostic subsystems

FA C I L I T I E S

■■ Charleston, South Carolina■■ Salt Lake City, Utah (headquarters)■■ Willich, Germany

PaxScan® 4030A imager for gastrointesti-nal diagnosis and digital subtractionangiography. A major equipment manu-facturer has begun distributing a diagnos-tic imaging system utilizing thisflat-panel technology in Japan.The business also improvedproduct quality and factoryefficiency, and established a new X-ray tube reload operation outside ofDüsseldorf, Germany.

O U T L O O K The X-Ray Products unitwill continue strengthening the businessthrough the development and deploy-ment of leading technology for high-power tubes and cost effectivereplacement tubes for the aftermarket.Through acquisitions and cooperativearrangements, the unit will continue toexpand distribution of replacement X-raytubes in Europe and Asia. The business iscontinuing work on the commercializa-tion of amorphous silicon flat-panelimagers for fluoroscopic applications, andhas supplied products to several equip-ment manufacturers who are consideringincorporating this technology into theirimaging systems.

Varian X-Ray Products is the world’spremier independent supplier of X-ray

generating tubes, serving manufacturersof imaging equipment for medical

X-RAY PRODUCTS

A new X-ray tube for use in airport explosivedetection systems (EDS). See story on page 20.

PaxScan® 4030A flat-panel imager captures “live” X-rayimages for fluoroscopy (see story on page 14).

VA R I A N M E D I C A L S Y S T E M S 2 0 0 2 A N N UA L R E P O RT24

The GammaMedPlus 3/24 remote afterloader forHDR brachytherapy.

growth opportunities for Varian MedicalSystems by developing technologies thateclipse current capabilities in radiation ther-apy and X-ray imaging and/or lead toentirely new businesses. An importantrepository of scientific and engineeringexpertise, the Center conducts research insupport of product development for thecompany’s business units, as well as contractresearch for other medical institutions.

The BrachyTherapy business suppliesproducts for treating cancer patients byplacing tiny radiation sources withintumors. A market leader, this businessdevelops, manufactures, supplies, andservices devices and software for planningand delivering all forms of brachytherapy.

2 0 0 2 H I G H L I G H T S The BrachyTherapybusiness increased sales and net orders,and completed the acquisition of theGammaMed® line of afterloaders andaccessories for high-dose-rate brachyther-apy. This acquisition positioned Varianfor growth in high-dose-rate brachythera-py with the broadest range of products,pricing, and support. The business also introduced a new version of the

VariSeed™ brachytherapy product, whichenables doctors to improve treatment pre-cision through intraoperative planning.

O U T L O O K The BrachyTherapy business isseeking to become a $30 million annualenterprise by offering a wider range ofproducts and services to an expandedcustomer base. Brachytherapy hasproven its value in the treatment of cer-vical cancers, and hundreds of thou-sands of American men have beentreated for early-stage prostate cancer,with excellent results. The market isexpected to continue growing, as clini-cians research the use of brachytherapyfor treating cancer in an increasinglydiverse range of disease sites.

This group passed several milestones inkey research projects. It demonstrated thefeasibility of acquiring 3D images usingcone beam CT scanning on the Clinac lin-ear accelerators and Acuity systems. It alsoadvanced dynamic tracking and image-guided motion management technologiesand algorithms that enhance the accuracyand precision of radiotherapy. Anotherproject validated the use of implanted,

B R A C H Y T H E R A P Y P R O D U C T S A N D S E R V I C E S :

■■ GammaMedPlus™ and VariSource™

high-dose-rate brachytherapy delivery systems

■■ VariSeed™ brachytherapy treatmentplanning software for prostate seed implants

■■ BrachyVision™ treatment planning software for high- and low-dose-ratebrachytherapy

FA C I L I T I E S

■■ Charlottesville, Virginia ■■ Crawley, England ■■ Haan, Germany■■ Mountain View, California (headquarters)

radio-opaque marker seeds for targetingprostate tumors. Researchers also deviseda means for achieving respiration-synchro-nized 4D CT & PET image acquisitionand supported the development of radia-tion-activated drug delivery systems.

The Center, which is headquartered inMountain View, California, also acts asone of the company’s financial segments,where results for contract research and forthe BrachyTherapy business are reported.

The Ginzton Technology Centerserves as Varian Medical Systems’

research and development organization.The Center’s mandate is to create market

GINZTON TECHNOLOGY CENTER

BRACHYTHERAPY

G I N Z T O N T E C H N O L O G Y C E N T E R A N D B R A C H Y T H E R A P Y B U S I N E S S(Dollars in Millions) 02 01 00

Net Orders $26 $25 $18Sales – as Reported $26 $21 $20Sales – Pro Forma(1) n/a n/a $19Pretax Losses – as Reported $ (2) $ (3) $ (5)Pretax Losses – Pro Forma(1) n/a n/a $ (5)Backlog – as Reported $12 $12 $ 8Backlog – Pro Forma(1) n/a n/a $ 9Capital Expenditures $ 1 $ – $ 1Depreciation & Amortization $ 1 $ 2 $ 2

(1) FY00 is presented on a pro forma basis (assuming SAB 101 was applied retroactive to prior periods) for comparison purposes.

25F I NA N C I A L TA B L E S

CONSOLIDATED STATEMENT OF EARNINGSFiscal Years

(Amounts in thousands, except per share amounts) 2002 2001(1) 2000

Sales $873,092 $773,643 $689,700Cost of sales 533,777 486,610 432,603

■■■■■■■ ■■■■■■■

Gross profit 339,315 287,033 257,097■■■■■■■ ■■■■■■■

Operating Expenses:Research and development 48,442 43,596 42,083Selling, general and administrative 146,088 133,981 125,107Reorganization (income) expense (192) (435) 227Acquisition-related expenses – – 1,977

■■■■■■■ ■■■■■■■

Total operating expenses 194,338 177,142 169,394■■■■■■■ ■■■■■■■

Operating earnings 144,977 109,891 87,703Interest income 5,768 6,281 2,333Interest expense (4,486) (4,132) (5,161)Other – (5,000)(2) –

■■■■■■■ ■■■■■■■

Earnings from operations before taxes 146,259 107,040 84,875Taxes on earnings 52,650 39,070 31,826

■■■■■■■ ■■■■■■■

Earnings before cumulative effect of changes in accounting principles 93,609 67,970 53,049Cumulative effect of changes in accounting principles – net of taxes – (13,720) –

■■■■■■■ ■■■■■■■

Net earnings $ 93,609 $ 54,250 $ 53,049■■■■■■■ ■■■■■■■

Net earnings per share – Basic:(3)

Earnings before cumulative effect of changes in accounting principles $ 1.38 $ 1.03 $ 0.85Cumulative effect of changes in accounting principles – (0.21) –

■■■■■■■ ■■■■■■■

Net earnings per share – Basic $ 1.38 $ 0.82 $ 0.85■■■■■■■ ■■■■■■■

Net earnings per share – Diluted:(3)

Earnings before cumulative effect of changes in accounting principles $ 1.33 $ 0.99 $ 0.82Cumulative effect of changes in accounting principles – (0.20) –

■■■■■■■ ■■■■■■■

Net earnings per share – Diluted $ 1.33 $ 0.79 $ 0.82■■■■■■■ ■■■■■■■

Shares used in the calculation of net earnings per share:Weighted average shares outstanding – Basic 67,664 65,877 62,207

■■■■■■■ ■■■■■■■

Weighted average shares outstanding – Diluted 70,239 68,457 64,863■■■■■■■ ■■■■■■■

(1) During fiscal year 2001, the Company adopted Securities and Exchange Commission’s Staff Accounting Bulletin No. 1 (SAB 101) “Revenue Recognition in Financial Statements”and Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The cumulative effect of changes in accounting princi-ples reflects the net effect of prior years of the Company’s adoption of these accounting changes as of the beginning of fiscal year 2001.

(2) During fiscal year 2001, the Company wrote off its $5 million investment in the dpiX consortium.(3) The results for fiscal year 2001 and 2000 have been restated for the two-for-one stock split (effected in the form of a stock dividend) paid on January 15, 2002.

VA R I A N M E D I C A L S Y S T E M S 2 0 0 2 A N N UA L R E P O RT26

CONSOLIDATED BALANCE SHEETSFiscal Year-End

(Dollars in thousands, except par values) 2002 2001

AssetsCurrent Assets

Cash and cash equivalents $ 160,285 $ 218,961Short-term marketable securities 41,035 –Accounts receivable, net 237,345 227,794Inventories 123,815 111,777Other current assets 88,879 60,971

■■■■■■■

Total current assets 651,359 619,503■■■■■■■

Property, plant and equipment 226,324 209,105Accumulated depreciation and amortization (144,184) (133,279)

■■■■■■■

Net property, plant and equipment 82,140 75,826Long-term marketable securities 97,529 –Goodwill 59,996 49,870Other assets 19,253 14,000

■■■■■■■

Total assets $ 910,277 $ 759,199■■■■■■■

Liabilities and Stockholders’ EquityCurrent liabilities

Notes payable $ 58 $ 174Accounts payable 45,776 44,839Accrued expenses 199,836 149,424Product warranty 30,725 23,975Advance payments from customers 81,688 66,942

■■■■■■■

Total current liabilities 358,083 285,354

Long-term accrued expenses and other 20,891 20,949Long-term debt 58,500 58,500

■■■■■■■

Total liabilities 437,474 364,803■■■■■■■

Commitments and contingenciesStockholders’ equity:

Preferred stockAuthorized 1,000,000 shares, par value $1 per share, issued and outstanding none – –

Common stock(1)

Authorized 99,000,000 shares, par value $1 per share, issued and outstanding 67,790,000 shares at September 27, 2002 and 67,359,000(1) shares at September 28, 2001 67,790 67,359

Capital in excess of par value(1) 118,278 92,160Deferred stock compensation (3,190) (4,247)Accumulated other comprehensive loss (2,530) –Retained earnings 292,455 239,124

■■■■■■■

Total stockholders’ equity 472,803 394,396■■■■■■■

Total liabilities and stockholders’ equity $ 910,277 $ 759,199■■■■■■■

(1) Fiscal year 2001 has been restated for the two-for-one stock split (effected in the form of a stock dividend) paid on January 15, 2002.

27F I NA N C I A L TA B L E S

CONSOLIDATED STATEMENTS OF CASH FLOWSFiscal Years

(Dollars in thousands) 2002 2001 2000

Operating ActivitiesNet cash provided by operating activities $ 156,037 $ 118,436 $ 83,839

■■■■■■ ■■■■■■■

Investing ActivitiesPurchase of marketable securities (139,110) – –Purchase of property, plant and equipment (25,907) (16,537) (19,234)Proceeds from sale of property, plant and equipment 437 52 1,786Purchase of businesses, net of cash acquired (14,086) 571 –Increase in cash surrender value of life insurance (2,799) (3,121) –Other, net (385) 228 (4,124)

■■■■■■ ■■■■■■■

Net cash used in investing activities (181,850) (18,807) (21,572)■■■■■■ ■■■■■■■

Financing ActivitiesNet repayments on short-term obligations (116) (442) (34,971)Proceeds from common stock issued to employees 23,960 42,487 23,730Repurchase of common stock (55,092) (4,301) –

■■■■■■ ■■■■■■■

Net cash provided by (used in) financing activities (31,248) 37,744 (11,241)■■■■■■ ■■■■■■■

Effects of exchange rate changes on cash (1,615) (1,733) 7,169■■■■■■ ■■■■■■■

Net increase (decrease) in cash and cash equivalents (58,676) 135,640 58,195Cash and cash equivalents at beginning of fiscal year 218,961 83,321 25,126

■■■■■■ ■■■■■■■

Cash and cash equivalents at end of fiscal year $ 160,285 $ 218,961 $ 83,321■■■■■■ ■■■■■■■

Detail of Net Cash Provided by Operating Activities:Net earnings $ 93,609 $ 54,250 $ 53,049Adjustments to reconcile net earnings to net cash

provided by operating activities:Depreciation 19,090 19,309 17,794Allowances for doubtful accounts 1,539 1,697 1,142Loss from sale of assets 237 739 73Amortization of intangibles 759 3,573 4,162Amortization of premium/discount on marketable securities, net 546 – –Amortization of deferred stock compensation 1,057 994 –Deferred taxes (15,681) (13,547) (1,062)Non-cash stock-based compensation – 53 190Cumulative effect of changes in accounting principles – 13,720 –Net change in fair value of derivatives and underlying commitments 138 2,658 –Other (460) 6,550 514Changes in assets and liabilities:

Accounts receivable (2,179) 2,891 (8,802)Inventories (10,172) (11,447) (14,158)Other current assets (4,592) 2,017 1,811Accounts payable (257) 2,829 3,121Accrued expenses 35,845 (7,260) 12,192Product warranty 7,154 4,892 2,000Advance payments from customers 13,997 6,940 5,938Long-term accrued expenses and other (1,996) (2,976) (2,095)Tax benefits from employee stock option exercises 17,403 30,554 7,970

■■■■■■ ■■■■■■■

Net cash provided by operating activities $ 156,037 $ 118,436 $ 83,839■■■■■■ ■■■■■■■

VA R I A N M E D I C A L S Y S T E M S 2 0 0 2 A N N UA L R E P O RT28

OFFICERS AND DIRECTORS

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O F F I C E R S

Richard M. Levy, Ph.D.*President and ChiefExecutive Officer

Elisha W. Finney*Vice President, FinanceChief Financial Officer

John C. Ford, Ph.DVice President,Senior Vice President,Oncology Systems

Timothy E. Guertin*Executive Vice President,President, Oncology Systems

Robert H. Kluge*Vice President,President, X-Ray Products

Keith E. KrugmanVice President,Vice President, Operations andWorldwide Customer Support,Oncology Systems

John E. McCarthyVice President,Human Resources

Mark R. MohlerCorporate Treasurer

Joseph B. Phair*Vice President,Administration,General Counsel andSecretary

Crisanto C. Raimundo*Vice President,Corporate Controller

George A. Zdasiuk, Ph.D.Vice President,Ginzton Technology Center

* Executive Officers

B O A R D O F D I R E C T O R S

Richard W. VieserChairman of the Board,Varian Medical Systems, Inc.,Chairman, CEO, andPresident (Retired)Lear Siegler, Inc.

John Seely Brown, Ph.D.Former Chief Scientist, Xerox Corporation;Director Emeritus,Xerox PARC

Samuel Hellman, M.D.A.N. Pritzker DistinguishedService Professor,Department of Radiationand Cellular Oncology,University of Chicago

Terry R. LautenbachSenior Vice President(Retired), InternationalBusiness MachinesCorporation

Richard M. Levy, Ph.D.President and ChiefExecutive Officer,Varian Medical Systems, Inc.

David W. Martin, Jr., M.D.Chief Executive Officer,Eos Biotechnology, Inc.

Burton Richter, Ph.D.Paul Pigott Professor inPhysical Sciences,Stanford University;Director Emeritus, StanfordLinear Accelerator Center

S T O C K H O L D E R I N F O R M AT I O N

World HeadquartersVarian Medical Systems, Inc.3100 Hansen WayPalo Alto, CA 94304-1038650.493.4000

Stockholder RelationsCopies of Varian Medical Systems’Annual Report on Form 10-K filedwith the Securities and ExchangeCommission and other current finan-cial information are available withoutcharge by contacting StockholderRelations, Varian Medical Systems,Inc., 3100 Hansen Way, M/S E-210,Palo Alto, CA 94304-1038,650.424.5855

To obtain information over the Internet, type www.varian.com at the URL prompt.

ListingsVarian Medical Systems’ common stock is listed on the New York andPacific Stock Exchanges. The symbolIs VAR.

Transfer Agent and RegistrarEquiService Trust Company, N.A.PO Box 2500Jersey City, NJ 07303-25001.800.756.8200Hearing impaired 201.222.4955www.equiserve.com

Stockholders’ MeetingThe annual meeting of stockholderswill be held on February 13, 2003 at 1:00 p.m. at Sheraton Palo Alto,625 El Camino Real, Palo Alto, California

Stockholders of Record There were 3,966 stockholders ofrecord of the Company’s commonstock on November 20, 2002.

Doctors around the world have begun usingSmartBeam™ IMRT from Varian MedicalSystems to treat cancer patients. Thisadvanced technique, which focuses radiotherapyon tumors while sparing surrounding healthytissue, is being used to treat breast, gynecologi-cal, head and neck, lung, pancreas, prostateand many other types of cancer. For many, itoffers new hope in the fight against cancer.S M A R T B E A M I M R T T R E AT M E N T C E N T E R S

■ States and Countries with Smartbeam IMRT Treatment Centers

To access a sampling of medical journal articles about IMRT, visit:http://www.varian.com/papers

For a list of worldwide SmartBeam IMRT locations outside the U.S., visit:http://www.varian.com/worldsites

For the nearest U.S. facility offering SmartBeam IMRT, visit:http://www.varian.com/USsites