FormFactor (FORM)

Research and Development

Research and development expenses decreased in absolute dollars for the three months ended March 28, 2009 compared to the same period in the prior year primarily due to a decrease in certain new technology product development related costs, personnel costs and depreciation, facilities and information technology allocations. For the three months ended March 28, 2009, personnel costs decreased $1.4 million, primarily due to reductions in headcount as a result of our global reorganization plans; expenses related to new technology and product development decreased $0.5 million, depreciation and facilities and information technology allocations decreased $0.2 million, primarily due to the implementation of corporate cost reduction initiatives. Stock-based compensation included within research and development was $1.0 million for the three months ended March 28, 2009 compared to $1.2 million for the three months ended March 29, 2008, with the decrease in absolute dollars being primarily due to reductions in headcount due to the 2008 and 2009 global cost reduction plans.

As a percent of revenues, research and development expenses increased during the three months ended March 28, 2009 compared to the three months ended March 29, 2008 primarily due to the declining revenue base.

We are continuing our strategic investments in research and development, including the development of our next generation parallelism architecture and products, fine pitch memory and SoC products, advanced MicroSpring interconnect technology and new process technologies. We remain committed to product development in new and emerging technologies.

Research and Development

        Research and development expenses increased in absolute dollars in fiscal 2008 as compared to fiscal 2007 primarily due to an increase in product development related costs offset by a decrease in personnel costs. During fiscal 2008, expenses related to new technology and product development increased $5.2 million, and depreciation and facilities and information technology allocations increased $0.7 million due to investment in research and development facilities and development equipment. In fiscal 2008 personnel costs decreased $1.3 million due to the work force reductions as well as the temporary suspension of our company's key employee bonus and profit sharing plans. Stock-based compensation included within research and development was $5.0 million for fiscal 2008 compared to $5.2 million for fiscal 2007, with the decrease in absolute dollars being primarily due to reductions in headcount as a result of our 2008 global reorganization plans.

        As a percent of revenues, research and development expenses increased in fiscal 2008 as compared to fiscal 2007 primarily due to the declining revenue base.

        Our future operating results depend significantly on our ability to timely deliver reliable, cost-effective products that meet our customers' testing requirements and that have a competitive advantage in our marketplace. To do this, we believe that we must continue to make substantial investments in our research and development. We are continuing our strategic investments in research and development, including the development of our next generation parallelism architecture and products, fine pitch memory and logic products, advanced MicroSpring interconnect technology and new process technologies. We remain committed to product development in new and emerging technologies.

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Research and Development

        Research
and development expenses increased in absolute dollars in fiscal 2008 as compared to fiscal 2007 primarily due to an increase in product development related costs offset by a
decrease in personnel costs. During fiscal 2008, expenses related to new technology and product development increased $5.2 million, and depreciation and facilities and information technology
allocations increased $0.7 million due to investment in research and development facilities and development equipment. In fiscal 2008 personnel costs decreased $1.3 million due to the
work force reductions as well as the temporary suspension of our company's key employee bonus and profit sharing plans. Stock-based compensation included within research and development was
$5.0 million for fiscal 2008 compared to $5.2 million for fiscal 2007, with the decrease in absolute dollars being primarily due to reductions in headcount as a result of our 2008 global
reorganization plans.

        As
a percent of revenues, research and development expenses increased in fiscal 2008 as compared to fiscal 2007 primarily due to the declining revenue base.

        Our
future operating results depend significantly on our ability to timely deliver reliable, cost-effective products that meet our customers' testing requirements and that
have a competitive advantage in our marketplace. To do this, we believe that we must continue to make substantial investments in our research and development. We are continuing our strategic
investments in research and development, including the development of our next generation parallelism architecture and products, fine pitch memory and logic products, advanced MicroSpring interconnect
technology and new process technologies. We remain committed to product development in new and emerging technologies.

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Research and Development

        Research
and development expenses increased in absolute dollars in fiscal 2008 as compared to fiscal 2007 primarily due to an increase in product development related costs offset by a
decrease in personnel costs. During fiscal 2008, expenses related to new technology and product development increased $5.2 million, and depreciation and facilities and information technology
allocations increased $0.7 million due to investment in research and development facilities and development equipment. In fiscal 2008 personnel costs decreased $1.3 million due to the
work force reductions as well as the temporary suspension of our company's key employee bonus and profit sharing plans. Stock-based compensation included within research and development was
$5.0 million for fiscal 2008 compared to $5.2 million for fiscal 2007, with the decrease in absolute dollars being primarily due to reductions in headcount as a result of our 2008 global
reorganization plans.

        As
a percent of revenues, research and development expenses increased in fiscal 2008 as compared to fiscal 2007 primarily due to the declining revenue base.

        Our
future operating results depend significantly on our ability to timely deliver reliable, cost-effective products that meet our customers' testing requirements and that
have a competitive advantage in our marketplace. To do this, we believe that we must continue to make substantial investments in our research and development. We are continuing our strategic
investments in research and development, including the development of our next generation parallelism architecture and products, fine pitch memory and logic products, advanced MicroSpring interconnect
technology and new process technologies. We remain committed to product development in new and emerging technologies.

49

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Research and Development

        Research
and development expenses increased in absolute dollars in fiscal 2008 as compared to fiscal 2007 primarily due to an increase in product development related costs offset by a
decrease in personnel costs. During fiscal 2008, expenses related to new technology and product development increased $5.2 million, and depreciation and facilities and information technology
allocations increased $0.7 million due to investment in research and development facilities and development equipment. In fiscal 2008 personnel costs decreased $1.3 million due to the
work force reductions as well as the temporary suspension of our company's key employee bonus and profit sharing plans. Stock-based compensation included within research and development was
$5.0 million for fiscal 2008 compared to $5.2 million for fiscal 2007, with the decrease in absolute dollars being primarily due to reductions in headcount as a result of our 2008 global
reorganization plans.

        As
a percent of revenues, research and development expenses increased in fiscal 2008 as compared to fiscal 2007 primarily due to the declining revenue base.

        Our
future operating results depend significantly on our ability to timely deliver reliable, cost-effective products that meet our customers' testing requirements and that
have a competitive advantage in our marketplace. To do this, we believe that we must continue to make substantial investments in our research and development. We are continuing our strategic
investments in research and development, including the development of our next generation parallelism architecture and products, fine pitch memory and logic products, advanced MicroSpring interconnect
technology and new process technologies. We remain committed to product development in new and emerging technologies.

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Research and Development

        Research and development expenses increased for fiscal 2007 as compared to fiscal 2006 primarily due to an increase in personnel, new technology, product development related costs and facility expansion. Personnel costs increased $6.1 million due to increased headcount while expenses related to new technology and product development increased $6.4 million. Facilities related costs and depreciation increased $1.8 million due to new investment in R&D equipment and facilities expansion at our Livermore, California, facilities while stock-based compensation remained fairly consistent for the same periods. We continued the development of our next generation parallelism architecture and products, fine pitch memory and SoC products, advanced MicroSpring interconnect technology and new process technologies. We also made incremental investments in new technologies and products as we focus on new market opportunities.

Research and Development

        Research
and development expenses increased for fiscal 2007 as compared to fiscal 2006 primarily due to an increase in personnel, new technology, product development related costs and
facility expansion. Personnel costs increased $6.1 million due to increased headcount while expenses related to new
technology and product development increased $6.4 million. Facilities related costs and depreciation increased $1.8 million due to new investment in R&D equipment and facilities
expansion at our Livermore, California, facilities while stock-based compensation remained fairly consistent for the same periods. We continued the development of our next generation parallelism
architecture and products, fine pitch memory and SoC products, advanced MicroSpring interconnect technology and new process technologies. We also made incremental investments in new technologies and
products as we focus on new market opportunities.

Research and Development

        Research
and development expenses increased for fiscal 2007 as compared to fiscal 2006 primarily due to an increase in personnel, new technology, product development related costs and
facility expansion. Personnel costs increased $6.1 million due to increased headcount while expenses related to new
technology and product development increased $6.4 million. Facilities related costs and depreciation increased $1.8 million due to new investment in R&D equipment and facilities
expansion at our Livermore, California, facilities while stock-based compensation remained fairly consistent for the same periods. We continued the development of our next generation parallelism
architecture and products, fine pitch memory and SoC products, advanced MicroSpring interconnect technology and new process technologies. We also made incremental investments in new technologies and
products as we focus on new market opportunities.

Research and Development

        Research
and development expenses increased for fiscal 2007 as compared to fiscal 2006 primarily due to an increase in personnel, new technology, product development related costs and
facility expansion. Personnel costs increased $6.1 million due to increased headcount while expenses related to new
technology and product development increased $6.4 million. Facilities related costs and depreciation increased $1.8 million due to new investment in R&D equipment and facilities
expansion at our Livermore, California, facilities while stock-based compensation remained fairly consistent for the same periods. We continued the development of our next generation parallelism
architecture and products, fine pitch memory and SoC products, advanced MicroSpring interconnect technology and new process technologies. We also made incremental investments in new technologies and
products as we focus on new market opportunities.

Research and Development

        Research and development costs are expensed as incurred and consist primarily of personnel costs, development materials and other related costs.

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FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Continued)

Note 2—Summary of Significant Accounting Policies: (Continued)

Research and Development

        Research and development costs are expensed as incurred and consist primarily of personnel costs, development materials and other
related costs.

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FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Continued)

Note 2—Summary of Significant Accounting Policies: (Continued)

Research and Development

        Research and development costs are expensed as incurred and consist primarily of personnel costs, development materials and other
related costs.

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FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Continued)

Note 2—Summary of Significant Accounting Policies: (Continued)

Research and Development

        Research and development costs are expensed as incurred and consist primarily of personnel costs, development materials and other
related costs.

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FORMFACTOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT (Continued)

Note 2—Summary of Significant Accounting Policies: (Continued)

Research and Development

Research and development expenses increased in absolute dollars for the three and nine months ended September 27, 2008 as compared to the same periods in the prior year primarily due to an increase in new technology, product development related costs and facility expansion offset by a decrease in personnel costs. For the three and nine months ended September 27, 2008, expenses related to new technology and product development increased $1.3 million and $4.8 million, respectively, depreciation and facilities and information technology allocations remained relatively flat and increased $0.4 million , respectively, due to new investment in research and development equipment and facilities expansion and personnel costs decreased $0.2 million and $0.6 million, respectively, due to newly implemented cost saving strategies. Stock-based compensation decreased by $0.1 million for the three and nine months ended September 27, 2008 compared to the same periods in fiscal 2007 primarily due to an increase in turnover which resulted in a higher forfeiture rate used to calculate stock-based compensation expense. We are continuing our strategic investments in research and development, including the development of our next generation parallelism architecture and products, fine pitch memory and logic products, advanced MicroSpring interconnect technology and new process technologies. We are also making incremental investments in new technologies and products as we focus on new market opportunities.

22

Research and Development

Research and development expenses increased in absolute dollars for the three and six months ended June 28, 2008 as compared to the same periods in the prior year primarily due to an increase in new technology, product development related costs and facility expansion offset by a decrease in personnel costs. For the three and six months ended June 28, 2008, expenses related to new technology and product development increased $1.5 million and $3.5 million, respectively, depreciation and facilities and information technology allocations increased $0.2 million and $0.5 million, respectively, due to new investment in research and development equipment and facilities expansion and personnel costs decreased $0.5 million and $0.3 million, respectively, due to newly implemented cost saving strategies. Stock-based compensation increased by $0.3 million for the three months ended June 28, 2008 and remained relatively flat for the six months ended June 28, 2008, compared to the same periods in fiscal 2007 primarily due to an increase in headcount offset by an increase in turnover which resulted in a higher forfeiture rate used to calculate stock-based compensation expense. We are continuing our strategic investments in research and development, including the development of our next generation parallelism architecture and products, fine pitch memory and logic products, advanced MicroSpring interconnect technology and new process technologies. We are also making incremental investments in new technologies and products as we focus on new market opportunities.

21

Research and Development

Research and development expenses increased in absolute dollars for the three months ended March 29, 2008 as compared to the same period in the prior year primarily due to an increase in personnel costs, new technology, product development related costs and facility expansion. For the three months ended March 29, 2008, expenses related to new technology and product development increased $2.0 million, depreciation and facilities and information technology allocations increased $0.3 million due to new investment in R&D equipment and facilities expansion and personnel costs increased $0.2 million due to increased headcount. Stock-based compensation decreased by $0.2 million in the first three months of fiscal 2008 compared to the same period in fiscal 2007 primarily due to an increase in turnover which resulted in a higher forfeiture rate used to calculate stock-based compensation expense. We are continuing our strategic investments in research and development, including the development of our next generation parallelism architecture and products, fine pitch memory and logic products, advanced MicroSpring interconnect technology and new process technologies. We are also making incremental investments in new technologies and products as we focus on new market opportunities.