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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2003

OR

For the transition period from                      to                     .

Commission file number:                     

NPTest Holding Corporation

(Exact name of registrant as specified in its charter)

150 Baytech Drive, San Jose, California 95134

(Address of principal executive office, including zip code)

Registrant’s telephone number, including area code: (408) 586-8200

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes ¨   No x

The aggregate market value of the voting stock held by non-affiliates of the registrant, as of March 15, 2004, was approximately $204,692,000 based upon the last sale price reported for such date on the Nasdaq National Market. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for all other purposes.

The number of shares of Registrant’s Common Stock outstanding as of March 15, 2004 was 39,986,572.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive Proxy Statement for the Company’s Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

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INDEX

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements included in or incorporated by reference in this Annual Report on Form 10-K, other than statements of historical fact, are forward-looking statements. You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “could,” “would,” “should,” “expects,” “plans,” “anticipates,” “relies,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Such forward-looking statements include, among others, those statements regarding the future results of our operations; the recovery and upturn in the demand for semiconductors; technological trends in the semiconductor industry; our future product offerings and product features, as well as industry adoption of new technology; customers’ results utilizing our products; anticipated revenue from various domestic and international regions; international sales and operations; maintenance of competitive advantage; success of our product offerings; completion of backlog; creation of development and engineering programs for research and development; attraction and retention of employees; the completion of any acquisitions of third parties, or the technology or assets thereof; benefits received from any acquisitions and development of acquired technologies; the outcome of any litigation to which we are a party; results of our investment in leading edge technologies; enhancements of current products and strategic acquisitions; our future income tax rate; sufficiency of our existing cash balance, and investments and cash generated from operations to meet our liquidity and working capital requirements.

Our actual results may differ significantly from those projected in the forward-looking statements in this report. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 1, “Business” in this Annual Report on Form 10-K. You are cautioned not to place undue reliance on these forward-looking statements, and we expressly assume no obligations to update the forward-looking statements in this report that occur after the date hereof.

NPTest, the NPTest logo, DeFT, Sapphire NP, IDS, IDS OptiFIB, IDS OptiCA and SABER are our trademarks in the United States and other countries. All other trademarks, trade names or service marks appearing in this Annual Report on Form 10-K are the property of their respective owners.

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PART I

Overview

We design, develop and manufacture advanced semiconductor test and diagnostic systems and provide related services for the semiconductor industry. Our customers include integrated device manufacturers, or IDMs, fabless design companies, foundries and assembly and test subcontractors worldwide. Our products and services enable our customers to bring their increasingly complex integrated circuits, or ICs, to market faster, at lower cost and without compromising IC quality. We offer products that enable our customers to debug, characterize and test a wide range of ICs, including the fastest multi-Gigahertz microprocessors and the most highly integrated, high-speed system-on-a-chip, or SOC, devices. In addition, we provide test-engineering services, including debug, repair and characterization.

Our business dates back to 1965 when Fairchild Semiconductor established an automated test equipment division. Schlumberger Limited, a global oilfield and information services company with major activity in the energy industry, acquired Fairchild Semiconductor in 1979. The business we now operate, which we refer to as NPTest, Inc., was a part of the business Schlumberger acquired. On July 29, 2003, NPTest Holding, LLC, which is principally owned by Francisco Partners (95.7%) and Shah Management (3.6%), acquired NPTest, Inc. from Schlumberger. On December 16, 2003, we completed the sale of 14,600,000 shares in an initial public offering of our common stock. As of December 31, 2003, NPTest Holding, LLC owned approximately 63.4% of our outstanding common stock.

On February 23, 2004, we announced that we have entered into a definitive merger agreement pursuant to which Credence Systems Corporation, a leading provider of design-to-test solutions for the worldwide semiconductor industry, will acquire us. In accordance with the merger agreement, each share of our common stock will be converted into the right to receive, directly or indirectly, 0.8 shares of Credence common stock and $5.75 in cash. The closing of this transaction is subject to a number of conditions precedent, including approval by our stockholders and by Credence’s stockholders.

Corporate Structure

We were incorporated in June 2003, in Delaware, for the purposes of acquiring NPTest, Inc. from Schlumberger. We indirectly own 100% of the capital stock of NPTest, Inc., which conducts its operations, in part, through direct and indirect wholly-owned subsidiaries in the United States, Europe and Asia.

Industry Background

Historically, the semiconductor industry has been driven by the ability to integrate an increasing number of transistors on a given area of silicon, which has allowed for the production of smaller, faster and more complex integrated circuits at decreasing costs. This has been accomplished by shrinking circuit dimensions, increasing the silicon wafer size to allow for more die per wafer and introducing new conductive and insulating materials. These advancements, in combination with decreasing average selling prices, have allowed for the proliferation of semiconductor devices, as well as an increase in semiconductor content, in a wide variety of end market applications including computer, consumer and communication devices.

Despite the proliferation of semiconductor devices and increase in semiconductor content, the semiconductor industry is traditionally cyclical. Since peaking in 2000, the industry has been in the midst of a downturn which has been characterized by depressed end market demand, low utilization of equipment by semiconductor manufacturers and assembly and test subcontractors, and reduced spending on semiconductor capital equipment. Over the last two years, semiconductor manufacturers have focused capital equipment spending on advanced wafer processing equipment, but have invested less in improvements in back-end processes such as test and diagnostics. In addition, life cycles of end products have shortened and leading edge devices have moved to smaller geometries and higher performance levels. As a result, test systems installed during the industry peak do not meet the requisite performance requirements and are not cost-effective for new generations of ICs. Recent evidence points to a recovery in the industry as semiconductor manufacturers have seen increased demand for their products. We believe these factors will lead to demand for new cost-effective test products that are flexible enough to meet the evolving needs and rapid time-to-market requirements of semiconductor manufacturers.

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Semiconductor Design and Manufacturing Process

The following stages depict the multistage semiconductor design and manufacturing process:

Market Challenges

Test and associated design diagnostics play key roles in the semiconductor design and manufacturing process. Test and diagnostics are critical in high volume manufacturing for identifying non-performing ICs and isolating the cause of malfunctions. They are also essential to debugging and characterizing ICs, and measuring and increasing yield as manufacturing volumes increase. Test and diagnostics are becoming more challenging due to a number of factors, including:

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Our Solution

We design, develop, manufacture, sell and support advanced semiconductor test and diagnostic systems and offer test engineering services that enable our customers to increase their engineering and manufacturing efficiency and lower their cost of test. Our solution offers:

Business Strategy

Our objective is to lead the semiconductor test industry by introducing technologies that enhance the efficiency of test, validation and characterization in the semiconductor design and manufacturing process. Key elements of our strategy include:

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Products and Services

Our suite of products and services allows us to cost effectively meet our customers’ needs in IC design debug and validation, and IC repair, characterization, wafer sort, final test and failure analysis. We deliver high quality customer support and make available our engineering, diagnostic and test process expertise to semiconductor companies. Our products for IC design debug and validation, and IC repair and characterization are used in the validation and characterization stage; wafer sort products are employed at the end of the wafer fabrication stage; final test products are used in the assembly and final test stage; and failure analysis products are used in the failure analysis stage. Customer support and engineering services are available at each stage to help customers achieve optimal use of our products.

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Products

Our principal products include the following:

EXA3000. The EXA3000, introduced in 2000, is a high performance functional test platform capable of testing a wide range of ICs. The EXA3000 provides a wide performance range from 400 MHz to 3.2 GHz, allowing the test of most SOCs, microprocessors and graphics ICs. The EXA3000 is used for characterization and final test. Most recently, NVIDIA Corporation purchased multiple EXA3000 test systems to test current and next generation graphic ICs for characterization and production. The EXA3000 is flexible and customizable and includes features such as high performance digital instruments, advanced analog instruments, mixed signal synchronization, low electrical noise and a common graphical user interface. When configured with a high performance test head, the EXA3000 offers up to 1,280 configurable pins for high pin count ICs or for multiple testing of low pin count ICs.

DeFT. The DeFT is a structural test system, which is used to test high-end microprocessors and chipsets for wafer sort and final test. When it was introduced in 2001, it was the first commercially available structural tester. The DeFT is a low cost system, featuring a reduced pin count test interface that can test DFT-ready ICs. The DeFT also features high performance scan capability, a high accuracy clock and proprietary power supply technology that can provide up to 400 Amps with fast transient response.

Sapphire NP. Sapphire NP, our next generation platform introduced in July 2003, is designed to be a highly reconfigurable and scalable functional and structural tester for a wide range of ICs. Sapphire NP has all of its test electronics integrated in the test head and interconnected by a proprietary high bandwidth bus, which results in a lower cost platform and a smaller footprint. Sapphire NP can be used for design debug and validation, characterization, wafer sort and final test. Sapphire NP’s design supports a broad configuration range of up to 5,000 pins and a performance envelope that ranges from 200 MHz to 6.4 GHz. Initially, Sapphire NP is being sold in less complex configurations targeted at markets that require cost effective test solutions.

IDS 10000. The IDS 10000, introduced in 1994, is a compact electron beam system for IC diagnostics, with a computer aided design, or CAD, navigation user interface. During IC design debug and validation, the IDS 10000 can measure signals inside the IC, enabling the user to trace malfunctions to their root cause. In addition, in the failure analysis stage, IDS 10000 is capable of analyzing malfunctions down to 0.18 micron for non-working devices returned by customers.

IDS OptiCA. The IDS OptiCA, introduced in 2002, is an in-circuit probe and defect analysis tool using photon emission technology. The IDS OptiCA complements the IDS 10000 for testing flip chip and other advanced package devices which require instruments that can test from both sides of the IC as well as at the wafer level. IDS OptiCA detects electrical leakages and faulty electrical paths in the IC, two common problems associated with advanced process technologies through the integrated photon emission microscope, thermal laser simulation tool and timing analysis tool. The IDS OptiCA is capable of analyzing defects down to 90 nm. The IDS OptiCA is used for design debug and validation as well as failure analysis.

IDS OptiFIB. The IDS OptiFIB, introduced in 2002, is a Focused Ion Beam product used for circuit edit and repair. The IDS OptiFIB is unique because it combines ion and photon optics in a single coaxial column, with a CAD navigation interface, which enables the user to align FIB and CAD images simultaneously, increasing the accuracy of circuit modifications. In failure analysis, the IDS OptiFIB can identify and repair circuit layout at inner metal layers.

Services

NPTest services are an integral part of our business and directly contribute to customer satisfaction, as evidenced by the customer satisfaction awards that we have received which include:

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Customer Service

We have established a worldwide organization of engineers and specialists to help our customers maintain and repair our products. As of December 31, 2003, we had a customer service support staff of 239 people, including a call center staffed by trained technicians. A broad range of services is offered to address the technical needs of our customers. A 24-hour 7-day-a-week logistics network supports our customer service effort and we have two repair centers in North America. Our spare parts logistics network is outsourced to a specialized third party supplier with an international network of warehouses that provides express deliveries to our customer sites within two to 24 hours of receiving an order and offers our customers on-line access to shipment status. We believe that we have increased the productivity of our customer service organization through:

SABER

Established in 1997, our SABER group provides test engineering services for fabless semiconductor companies, system integrators, and IDMs. Many IC vendors, typically fabless companies, require outsourced assistance to help them reduce their IC design debug cycle-time, number of design iterations, and overall development costs. SABER services leverage our competencies in characterization, validation, circuit edit and high volume manufacturing test deployment, and provide access to leading edge techniques for companies who choose to outsource these type of engineering activities. SABER’s service offerings complement and optimize our customers’ overall outsourcing strategy by working cohesively with their design service, foundries, and assembly and test subcontractors. To better serve these customers, SABER has formed a strategic alliance with a major foundry that positions SABER to reach a broad universe of fabless semiconductor companies through its customer referrals. As of December 31, 2003, our SABER group had a staff of 68 people.

Sales and Marketing

We generate business primarily by expanding customer relationships. In a number of cases, early technology exchanges with industry leaders have developed into common projects, whereby the customer specifies product requirements and we develop the technology and implement the solution, within specified timing and pricing constraints. We work with our customers collaboratively to develop specific products, which we then market on a broader basis. We place a high value on developing and maintaining these types of relationships with our customers, which we believe is the best approach to product development. We sell our products and services directly to IDMs, fabless companies and assembly and test subcontractors. As of December 31, 2003, we had 81 people in our sales and marketing organization with sales offices in the major semiconductor manufacturing markets. We market our products and services to IDMs through our account managers. Account managers are responsible for the general relationship with the customer, including the coordination and preparation of technology roadmap exchanges. We have also established specialized sales and marketing teams to meet the particular requirements of fabless companies and assembly and test subcontractors, with a team dedicated to each group. These teams market our products and services to take advantage of cross-selling opportunities.

Customers

The semiconductor industry is highly concentrated, and a small number of IC device manufacturers and assembly and test subcontractors account for a substantial portion of the purchases of IC test equipment. Intel and STMicroelectronics, accounted for 41% and 11%, respectively, of our total combined twelve months revenue. The combined twelve months December 31, 2003 information represents the sum of the financial data for the January 1, 2003 to July 29, 2003 period for NPTest, Inc. and the financial data for the period from June 20, 2003 (our inception) to December 31, 2003 for NPTest Holding Corporation. These two customers are the only customers who accounted for 10% or more of our total revenue

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during this period. Sales to customers in North America accounted for approximately 51%, 52% and 39% of total revenue for the years ended December 31, 2003, 2002 and 2001, respectively; sales to customers in France accounted for approximately 8%, 9% and 10% of total revenue for the years ended December 31, 2003, 2002 and 2001, respectively; sales to customers in other countries in Europe accounted for approximately 8%, 5% and 13% of total revenue for the years ended December 31, 2003, 2002 and 2001, respectively; sales to customers in Japan accounted for approximately 9%, 9% and 9% of total revenue for the years ended December 31, 2003, 2002 and 2001, respectively; and sales to customers in other countries in Asia accounted for approximately 24%, 24% and 28% of total revenue for the years ended December 31, 2003, 2002 and 2001, respectively. Information on 2002 and 2001 represents the financial data for NPTest, Inc.

Manufacturing

All of the products manufactured by NPTest are assembled and shipped from our 105,000 square foot facility in Simi Valley, California. Our manufacturing operations are comprised of four segments: supply chain management, front-end manufacturing, system integration and test, and quality control. The supply chain organization is responsible for the planning and procurement of material, based on a monthly build plan approved by senior management, utilizing an MRP (material requirements planning) information system. Front-end manufacturing delivers complete and fully tested multi-layer electronic boards. System integration and test performs electro-mechanical integration, system calibration and final test and assists with customer acceptance. There is a formal quality structure in place with a strategy focused on process improvement teams to achieve overall factory quality targets. Both internal teams and customer representatives conduct regular quality assessments.

We outsource a portion of our front-end manufacturing requirements to Flextronics in St. Etienne, France. This strategy gives us the capability to increase our production volumes in a timely manner when there is a sudden surge in market demand. We expect to continue this arrangement with Flextronics in the future or, if advantageous, to obtain these services from another contract manufacturer. As of December 31, 2003, we had a staff of 133 people in our manufacturing group.

Research and Development

We have a highly structured approach to maximize research and development efficiency. A group of internal advisors formulates a long-term technology plan with clear objectives. Through our direct engagement with customers, high-priority projects are identified and appropriate resources are located. Engineering resources are organized by area of competence to effectively develop expertise and to share technologies across product lines. To improve our time-to-market with new products and technologies, we have multiple development centers worldwide that work simultaneously on projects, delivering 24-hour a day engineering capability. We internally develop software components for our products to achieve ease of use, integrated functionality, throughput efficiency and calibration/diagnostic effectiveness. This development is based on object-oriented architecture, modeling and design. We design critical devices, boards and modules that implement our proprietary architecture in our products. We use both internally developed and licensed sub-micron technology in our products. Our technologists include leaders in their field who regularly publish technical articles in leading industry publications and present at industry conferences.

Our expenditures for research and development for the combined twelve months ended December 31, 2003 were $52.6 million, representing 23% of revenue. The 2003 spending includes $5.0 million of in-process research and development expenses, from the purchase of NPTest, Inc. by Francisco Partners and $2.2 million of divestiture and retention bonuses. Our historical expenditures for 2002, and 2001 were $36.6 million and $34.7 million, respectively, representing 15.0% and 15.7% of revenue in each of the respective periods. The combined twelve months ended December 31, 2003 information represents the sum of the financial data for the January 1, 2003 to July 29, 2003 period for NPTest, Inc. and the financial data for the period from inception to December 31, 2003 for NPTest Holding Corporation. As of December 31, 2003, we had a staff of 224 employees in our research and development group.

Competition

We face substantial competition throughout the world in each of our product areas. Our competitors in the test and diagnostic systems market primarily include Advantest, Agilent Technologies, Credence Systems, FEI Company, Hamamatsu, LTX Corporation and Teradyne. As noted previously, on February 23, 2004, we announced that we have entered into a definitive agreement pursuant to which Credence Systems Corporation, a leading provider of design-to-test solutions for the worldwide semiconductor industry, will acquire us for cash and shares of Credence common stock.

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Some of our competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing and customer support capabilities. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that could adversely affect sales of our current and future products. In addition, we anticipate that increased competitive pressures will cause intensified price-based competition and we may have to adjust the prices of many of our products.

Intellectual Property

Our success depends in large part on our proprietary technology. We are not dependent on any individual patent but instead we rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. As of December 31, 2003, we had 84 United States patents and 78 foreign patents. We may be required to spend significant resources to monitor and protect our intellectual property rights. We may not be able to detect infringement and may lose our competitive position in the market before we do so. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture market share. We often rely on licenses of intellectual property useful for our business. We cannot be sure that these licenses will be available in the future on favorable terms or at all. In addition, our position with respect to the negotiation of licenses may change as a result of our acquisition from Schlumberger or as a result of our merger with Credence Systems.

Third parties may claim that we are infringing their intellectual property rights, and although we do not know of any infringement by our products of the valid intellectual property rights of third parties, we may be unaware of intellectual property rights of others that may cover some of our technology, products and services. Any litigation regarding patents or other intellectual property rights could be costly and time-consuming, and divert our management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements and we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products.

Employees

As of December 31, 2003, we had approximately 891 full time employees, of which 160 were located in Europe, 157 were located in Asia (including 47 in Japan) and 574 were located in North America. Of our total employees, 224 were principally dedicated to research and development, 158 were dedicated to sales, general and administrative, 376 were dedicated to customer service, marketing and applications and 133 were dedicated to manufacturing. None of our employees located in the United States are represented by a union. Our employees in Europe are represented by workers’ councils. Employees are compensated with a combination of salary, cash bonus and stock options.

Backlog

Our backlog of unfilled orders for all products and services was $68.3 million and $50.6 million at December 31, 2003 and 2002, respectively. The 2003 backlog represents orders that are scheduled for delivery through December 31, 2004. While backlog is calculated on the basis of firm orders, all orders are subject to cancellation or delay by the customer, generally without penalty. Our backlog at any particular date, therefore, is not necessarily indicative of actual sales that may be generated for any succeeding period. Historically, our backlog levels have fluctuated based upon the ordering patterns of our customers.

Available Information

NPTest Holding Corporation’s website is http://www.nptest.com. NPTest will make available free of charge, on or through its website, its annual, quarterly and current report, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission. This website address is intended to be an inactive textual reference only; none of the information contained on NPTest’s website is part of this report or is incorporated by reference herein.

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The SEC maintains a website that contains reports, proxy and information statements of the Company. Information that we file electronically to the SEC is available at the SEC website (http://www.sec.gov). The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

This annual report is available to any stockholders upon written request to the company’s Investor Relations Department at the Company’s headquarters on 150 Baytech Drive, San Jose, California 95134.

We are headquartered in San Jose, California, where we lease approximately 150,000 square feet of commercial space under a term lease that expires on October 31, 2009, subject to renewal for up to 15 years at our option. Under the lease, monthly payments are approximately $180,000. Our monthly payments under this lease will increase in 2005 to approximately $255,000. These facilities are used for executive office space, including sales and marketing, and finance and administration. We also lease approximately 105,000 square feet in Simi Valley, California under a term lease that expires on January 14, 2007. Monthly payments under this lease are approximately $74,000. The Simi Valley facility is primarily used for product assembly and manufacturing. We lease approximately 10,000 square feet in St. Etienne, France under a lease contract with Schlumberger assigned to Flextronics that expires on June 30, 2011 for an annual cost of about 256,000 Euro. We also lease approximately 7,700 square feet in Ferndown, U.K. under a lease contract with Schlumberger that expires on December 31, 2009. Monthly payments for the Ferndown facility under the agreement are approximately £9,350. The Ferndown and St. Etienne facilities are primarily used for engineering.

We believe that our existing facilities are adequate for our current needs.

There are presently no material legal proceedings pending, other than routine litigation incidental to our business, to which we are a party or to which any of our properties is subject.

The following matters were approved by NPTest Holding, LLC, at the time the sole stockholder of the Company, during the fourth quarter of the fiscal year ended December 31, 2003, by means of a written consent:

Actions by Written Consents dated November 18, 2003:

Actions by Written Consent dated December 4, 2003:

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PART II

The Company’s Common Stock is traded on the NASDAQ National Market under the symbol “NPTT.” The following table sets forth for the periods indicated the high and low sale prices of the Common Stock as reported by NASDAQ.

On March 15, 2004, the last sale price of the Common Stock as reported by NASDAQ was $14.02 per share.

As of March 15, 2004, there were less than 100 holders of record of the Company’s Common Stock.

To date, the Company has paid no cash dividends to its stockholders. The Company has no plans to pay cash dividends in the near future.

Exchange of Preferred Stock

In order to finance our acquisition of NPTest, Inc., we issued $68 million of convertible mandatory redeemable preferred stock to NPTest Holding, LLC, and our subsidiary, NPTest Capital Corporation, issued $50 million of mandatory redeemable preferred stock to NPTest Holding, LLC.

On December 16, 2003, we redeemed $20.75 million of NPTest Holding, LLC’s shares of mandatory redeemable preferred stock of NPTest Capital Corporation for cash from the proceeds of our initial public offering. We also exchanged at $12.00 per share of common stock, all of the remaining shares of preferred stock of NPTest Capital Corporation (including the additional amounts accreted from July 29, 2003 through December 16, 2003) for 2,566,247 shares of our common stock.

On December 16, 2003, NPTest Holding, LLC has also exchanged all of its shares of our convertible mandatory redeemable preferred stock (including the additional amounts accreted from July 29, 2003 through December 16, 2003), for 17,195,325 shares of our common stock at $4.09216 per share, the conversion price of the preferred stock.

Use of Proceeds

The following use of proceeds information pertains to the initial public offering of 14,600,000 shares of our Common Stock, par value $0.001 per share, which were sold pursuant to our Registration Statement on Form S-1 (Registration No. 333-108664) (the “Registration Statement”), declared effective on December 10, 2003 by the Securities and Exchange Commission. The offering commenced on December 11, 2003, and the underwriters delivered all of the shares registered to the purchasers on December 16, 2003. Citigroup Global Markets Inc. acted as sole book-running manager of the offering. Citigroup Global Markets Inc., Credit Suisse First Boston LLC, Lehman Brothers Inc. and Banc of America Securities LLC acted as representatives to the various underwriters. The public offering price for these shares was $12.00 per share. The underwriting discount was $0.84 per share. The proceeds to us, before expenses, were $11.16 per share, or approximately $162.9 million.

Our net proceeds from our initial public offering were approximately $160.3 million after deducting underwriting discounts and a reasonable estimate of expenses paid by us. We used our net proceeds from the sale of the shares in this offering to repay our $75.0 million principal amount senior term loan, plus accrued but unpaid interest, from an affiliate of Citigroup. The loan was guaranteed by Francisco Partners, the principal beneficial holder of our common stock. It was used by us to finance in part our acquisition of NPTest, Inc. from Schlumberger. We used $20.75 million of our net proceeds for the redemption of a portion of the mandatory redeemable Series A Preferred Stock issued by our subsidiary, NPTest Capital Corporation, all of which was held by NPTest Holding, LLC, which is principally owned by Francisco Partners (95.7%) and Shah Management (3.6%). In addition, $5.0 million of our net proceeds was used to make a one-time payment to Francisco Partners in consideration for the termination of certain obligations to Francisco Partners. See Item 13, “Certain Relationships and Related Transactions-Relationship with Francisco Partners.” The remainder of our net proceeds from the offering are being used for

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working capital and general corporate purposes, including the further development, production and commercialization of the Sapphire NP platform, and investments in selling, general and administrative activities and other product development. No material amounts were spent with respect to these items prior to the ending date of the reporting period covered by this Annual Report on Form 10-K. In addition, while we currently have no specific acquisition plans, we may use a portion of the net proceeds to acquire complementary products, technologies or businesses.

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NPTest Holding Corporation was incorporated on June 20, 2003, and did not have any operations prior to July 29, 2003. Financial data for the periods prior to July 29, 2003 are referred to as “Predecessor Company” and are derived from the combined financial statements of NPTest, Inc. Although NPTest, Inc. was not a separate company, the accompanying combined financial statements are presented as if NPTest, Inc. had existed as an entity separate from Schlumberger and its subsidiaries. These combined financial statements include the historical assets, liabilities, revenues and expenses that were directly related to the NPTest, Inc. business of Schlumberger during the periods presented and have been derived from Schlumberger’s historical bases in the assets and liabilities and the historical results of operations of NPTest, Inc. Our financial statements for the period from inception to December 31, 2003 reflect the purchase accounting resulting from the acquisition of NPTest, Inc. from Schlumberger on July 29, 2003. Following the acquisition of the business from Schlumberger, we began accumulating retained earnings.

The results of operations for the interim period January 1, 2003 to July 29, 2003 of NPTest, Inc. and the period from inception to December 31, 2003 of NPTest Holding Corporation are not necessarily indicative of the results of operations to be expected for any other interim period or for the full year.

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The following tables reflect selected consolidated summary financial data for each of the last five fiscal years. This data should be read in conjunction with Item 8, “Financial Statements and Supplementary Data,” and with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.