Varian Semiconductor Equipment Associates (VSEA)

Research and Development

Research and development expense for the second quarter and first six months of fiscal year 2009 was $19.0 million and $41.1 million, respectively, compared to $28.5 million and $57.3 million, respectively, for the same periods in fiscal year 2008. Although we have reduced our spending in response to the industry downturn, we continue to maintain our investments in new product development and growth initiatives.

Research and Development

Research and development expense was $22.1 million for the first quarter of fiscal year 2009, compared to $28.7 million for the first quarter of fiscal year 2008. Although, we have reduced our discretionary spending in response to the industry downturn, we continue to maintain our investments in new product development and growth initiatives.

19

Table of Contents

Research and Development

Research and development expenses were $111.2 million for fiscal year 2008, compared to $104.0 million for fiscal year 2007, an increase of $7.2 million, or 7%. The increase in research and development spending is attributable to Varian Semiconductor’s rapid product development cycle (which aims to introduce new products every nine to twelve months) and continuing efforts to improve productivity and technical development of its products. Additionally, Varian Semiconductor is actively investing in finding new applications for its products. Varian Semiconductor focuses on maintaining its leadership position in the markets for medium current, high current and ultra high dose implanters, improving its position in the high energy business and continuing to invest in additional new and next generation products.

Research and development expenditures were $104.0 in fiscal year 2007, compared to $90.6 million in fiscal year 2006, an increase of $13.4 million, or 15%. Similar to fiscal year 2008, the increase in research and development spending in fiscal year 2007 as compared to fiscal year 2006 is attributable to Varian Semiconductor’s rapid product development cycle.

Research and Development

Research and development
expenses were $111.2 million for fiscal year 2008, compared to $104.0 million for fiscal year 2007, an increase of $7.2 million, or 7%. The increase in research and development spending is attributable to Varian Semiconductor’s rapid product
development cycle (which aims to introduce new products every nine to twelve months) and continuing efforts to improve productivity and technical development of its products. Additionally, Varian Semiconductor is actively investing in finding new
applications for its products. Varian Semiconductor focuses on maintaining its leadership position in the markets for medium current, high current and ultra high dose implanters, improving its position in the high energy business and continuing to
invest in additional new and next generation products.

Research and development expenditures were $104.0 in fiscal year 2007, compared to $90.6 million in
fiscal year 2006, an increase of $13.4 million, or 15%. Similar to fiscal year 2008, the increase in research and development spending in fiscal year 2007 as compared to fiscal year 2006 is attributable to Varian Semiconductor’s rapid product
development cycle.

Research and Development

Research and development expense for the third quarter and first nine months of fiscal year 2008 was $27.2 million and $84.5 million, respectively, compared to $26.3 million and $76.0 million, respectively, for the same periods in fiscal year 2007. The increase in research and development spending is attributable to Varian Semiconductor’s rapid product development cycle, which aims to introduce new products every nine to twelve months and continuing efforts to improve productivity and technical development of its products. Additionally, Varian Semiconductor is actively investing in an effort to find new applications for its products. Varian Semiconductor focuses on maintaining its leadership position in the markets for medium current, high current and ultra high dose implanters, improving its position in the high energy business and continuing to invest in other new and next generation products.

Research and Development

Research and development expense for the second quarter and first six months of fiscal year 2008 was $28.5 million and $57.3 million, respectively, compared to $25.6 million and $49.8 million, respectively, for the same periods in fiscal year 2007. The increase in research and development spending is attributable to Varian Semiconductor’s rapid product development cycle, which aims to introduce new products every nine to twelve months and continuing efforts to improve productivity and technical development of its products. Additionally, Varian Semiconductor is actively investing in an effort to find new applications for its products. Varian Semiconductor focuses on maintaining its leadership position in the markets for medium current, high current and ultra high dose implanters, improving its position in the high energy business and continuing to invest in other new and next generation products.

Research and Development

Research and development expense was $28.7 million for the first quarter of fiscal year 2008, compared to $24.2 million for the first quarter of fiscal year 2007. The increase in research and development spending is attributable to Varian Semiconductor’s rapid product development cycle, which aims to introduce new products every nine to twelve months and continuing efforts to improve productivity and technical development of its products. Varian Semiconductor focuses on maintaining its leadership position in the markets for medium current, high current and plasma doping implanters, improving its position in the high energy business and continuing to invest in other new and next generation products.

Research and Development

Research and development expenses were $104.0 million for fiscal year 2007, compared to $90.6 million for fiscal year 2006 and $77.7 million for fiscal year 2005, an increase of $13.4 million, or 15% from fiscal year 2006 to fiscal year 2007, and an increase of $12.9 million, or 17% from fiscal year 2005 to fiscal year 2006. The increases in research and development spending are attributable to Varian Semiconductor’s rapid product development cycle (which aims to introduce new products every nine to twelve months) and continuing efforts to improve productivity and technical development of its products. Varian Semiconductor focuses on maintaining its leadership position in the markets for medium current and high current implanters, improving its position in the high energy business and continuing to invest in additional new and next generation products. Research and development expense for fiscal year 2007 and fiscal year 2006 included $3.9 million and $3.7 million, respectively, of equity-based compensation costs recorded upon the adoption of SFAS No. 123(R) as of October 1, 2005.

Research and Development

Research and development expenses were $26.3 million and $76.0 million, respectively, for the third quarter and first nine months of fiscal year 2007, compared to $22.9 million and $66.7 million, respectively, for the same periods in fiscal year 2006. The increase in research and development spending is attributable to Varian Semiconductor’s rapid product development cycle and continuing efforts to improve productivity and technical development of its products. Varian Semiconductor focuses on maintaining its leadership position in the markets for medium current and high current implanters, while continuing to invest in new and next generation products.

18

Table of Contents

Research and Development

Research and development expenses were $25.6 million and $49.8 million, respectively, for the second quarter and first six months of fiscal year 2007, compared to $22.3 million and $43.9 million, respectively, for the same periods in fiscal year 2006. The increase in research and development spending is attributable to Varian Semiconductor’s rapid product development cycle and continuing efforts to improve productivity and technical development of its products. In addition to maintaining its leadership position in the markets for medium current and high current implanters, Varian Semiconductor continues to invest in new and next generation products.

Research and Development

Research and development expense was $24.2 million for the first quarter of fiscal year 2007, compared to $21.6 million for the first quarter of fiscal year 2006. The increase in research and development spending is attributable to Varian Semiconductor’s rapid product development cycle and continuing efforts to improve productivity and technical development of its products. In addition to maintaining its leadership position in the markets for medium current and high current implanters, Varian Semiconductor continues to invest in new and next generation products.

Research and Development

Research and development expenses were $90.6 million for fiscal year 2006, compared to $77.7 million for fiscal year 2005 and $67.7 million for fiscal year 2004, an increase of $12.9 million, or 17% from fiscal year 2005 to fiscal year 2006, and an increase of $10.0 million, or 15% from fiscal year 2004 to fiscal year 2005. The increases in research and development spending are attributable to Varian Semiconductor’s rapid development cycle and continuing efforts to improve productivity and technical development of its products. The year-over-year increase was a result of increased labor and material spending associated with the development of new products, particularly for new generation high current implanters. In addition to developing new high current products, Varian Semiconductor continues to focus on maintaining its leadership position in the market for medium current implanters. Research and development expense for fiscal year 2006 included $3.7 million of equity-based compensation costs recorded upon the adoption of SFAS No. 123(R) as of October 1, 2005.

Research and Development

The semiconductor manufacturing industry is subject to rapid technological change requiring new product introductions and enhancements. Varian Semiconductor’s ability to remain competitive in this market will depend in part upon its ability to develop new and enhanced systems and to introduce these systems at competitive prices and on a timely and cost-effective basis. Accordingly, Varian Semiconductor devotes a significant portion of its personnel and financial resources to research and development programs and seeks to maintain close relationships with its customers to remain responsive to their product needs.

Varian Semiconductor’s current research and development efforts are directed at development of new systems and processes and improving existing system capabilities. Varian Semiconductor currently focuses its research and development efforts on the enhancement of its VIISta platform. The VIISta platform is designed to cover the complete range of implants required for the next several generations of integrated circuits. The VIISta single wafer platform allows customers to use a single platform for all implant applications including high current, medium current and high energy.

Expenditures by Varian Semiconductor for research and development during fiscal years 2005, 2004 and 2003 were $77.7 million, $67.7 million and $60.5 million, respectively. Varian Semiconductor expects in future years that research and development expenditures will continue to represent a substantial percentage of operating

7

Table of Contents

expenses. In addition to developing new high current products, Varian Semiconductor continues to focus on maintaining its leadership position in the market for medium current implanters.