Verigy Ltd. - FORM 10-Q

Verigy Ltd. - FORM 10-Q - June 8, 2011

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EX-32.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 - Verigy Ltd.	dex321.htm
EX-32.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 - Verigy Ltd.	dex322.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14 - Verigy Ltd.	dex312.htm
EXCEL - IDEA: XBRL DOCUMENT - Verigy Ltd.	Financial_Report.xls
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14 - Verigy Ltd.	dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-52038

Verigy Ltd.

(Exact Name of Registrant as Specified in Its Charter)


SINGAPORE		N/A
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

NO. 1 YISHUN AVE 7 SINGAPORE 768923		N/A
(Address of Principal Executive Offices)		(Zip Code)

(+65) 6755-2033

(Registrant’s telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of June 3, 2011, there were 61,729,602 outstanding ordinary shares, no par value.

VERIGY LTD.

TABLE OF CONTENTS


		Page Number
Part I. Financial Information
Item 1.	Financial Statements (Unaudited)		3
	Condensed Consolidated Financial Statements
	Condensed Consolidated Statements of Operations for the three and six months ended April 30, 2011 and 2010		3
	Condensed Consolidated Balance Sheets at April 30, 2011 and October 31, 2010		4
	Condensed Consolidated Statements of Cash Flows for the six months ended April 30, 2011 and 2010		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3.	Quantitative and Qualitative Disclosures About Market Risks		44
Item 4.	Controls and Procedures		45

Part II. Other Information

Item 1.	Legal Proceedings		46
Item 1A.	Risk Factors		46
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		57
Item 3.	Defaults Upon Senior Securities		57
Item 5.	Other Information		57
Item 6.	Exhibits		57
Signature			59
Exhibit Index			60

PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

VERIGY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
	(in millions, except share amounts)
Net revenue:
Products	$	77		$	88		$	160		$	164
Services		35			32			72			62

Total net revenue		112			120			232			226
Costs of sales:
Cost of products		50			42			92			82
Cost of services		22			21			44			40

Total costs of sales		72			63			136			122
Operating expenses:
Research and development		23			23			46			45
Selling, general and administrative		29			32			58			61
Transaction-related costs		23			—			32			—
Restructuring charges		2			1			2			2

Total operating expenses		77			56			138			108
(Loss) income from operations		(37	)		1			(42	)		(4	)
Other (expense) income, net		(1	)		(1	)		(1	)		(2	)
Impairment of investments		—			(1	)		—			(1	)

Loss before income taxes		(38	)		(1	)		(43	)		(7	)
Provision for income taxes		2			—			2			—

Net loss	$	(40	)	$	(1	)	$	(45	)	$	(7	)

Net loss per share – basic:	$	(0.66	)	$	(0.02	)	$	(0.74	)	$	(0.12	)
Net loss per share – diluted:	$	(0.66	)	$	(0.02	)	$	(0.74	)	$	(0.12	)
Weighted average shares (in thousands) used in computing net loss per share:
Basic:		60,766			59,353			60,608			59,249
Diluted:		60,766			59,353			60,608			59,249

The accompanying notes are an integral part of these condensed consolidated financial statements.

VERIGY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	April 30, 2011			October 31, 2010
	(in millions, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	244		$	296
Short-term marketable securities		153			135
Trade accounts receivable, net		77			94
Inventory		93			85
Other current assets		55			47

Total current assets		622			657
Property, plant and equipment, net		43			45
Long-term marketable securities		24			38
Goodwill and other intangibles, net		14			14
Other long-term assets		64			63

Total assets	$	767		$	817

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	65		$	69
Employee compensation and benefits		23			35
Deferred revenue, current		37			44
Income taxes and other taxes payable		3			6
Other current liabilities		21			18

Total current liabilities		149			172
Long-term liabilities:
Convertible senior notes		138			138
Income taxes payable		19			18
Other long-term liabilities		60			60

Total liabilities		366			388

Commitments and contingencies (Note 22)
Shareholders’ equity
Ordinary shares, no par value; 60,804,148 and 60,015,188 issued and outstanding at April 30, 2011 and October 31, 2010, respectively
Additional paid in capital		462			449
Accumulated deficit		(52	)		(7	)
Accumulated other comprehensive loss		(9	)		(13	)

Total shareholders’ equity		401			429

Total liabilities and shareholders’ equity	$	767		$	817

The accompanying notes are an integral part of these condensed consolidated financial statements.

VERIGY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended April 30,
	2011			2010
	(in millions)
Cash flows from operating activities:
Net loss	$	(45	)	$	(7	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		11			10
Gross excess and obsolete inventory-related provisions		11			3
Share-based compensation		11			10
Impairment of investments		—			1
Realized gain on marketable securities		(2	)		—
Changes in assets and liabilities:
Trade accounts receivable, net		17			(26	)
Inventory		(16	)		(17	)
Accounts payable		(4	)		20
Employee compensation and benefits		(12	)		—
Deferred revenue, current		(7	)		8
Income taxes and other taxes payable		(3	)		(4	)
Other current assets and accrued liabilities		(7	)		(5	)
Other long-term assets and long-term liabilities		(1	)		—

Net cash used in operating activities		(47	)		(7	)
Cash flows from investing activities:
Investments in property, plant and equipment		(6	)		(7	)
Proceeds from disposition of assets		1			1
Purchases of available for sale marketable securities		(121	)		(139	)
Proceeds from sales of available for sale marketable securities		53			120
Proceeds from maturities of available for sale marketable securities		65			34

Net cash (used in) provided by investing activities		(8	)		9
Cash flows from financing activities:
Issuance of ordinary shares under employee stock plans		2			1

Net cash provided by financing activities		2			1

Effect of exchange rate changes on cash and cash equivalents		1			—
Net (decrease) increase in cash and cash equivalents		(52	)		3
Cash and cash equivalents at beginning of period		296			197

Cash and cash equivalents at end of period	$	244		$	200

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	3		$	2
Cash paid for interest	$	4		$	4

The accompanying notes are an integral part of these condensed consolidated financial statements.

VERIGY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	OVERVIEW

Overview

Verigy Ltd. (“we,” “us” or the “Company”) designs, develops, manufactures and sells advanced test systems and solutions for the semiconductor industry.

We offer a scalable platform for each of the general categories of devices being tested: our V93000 Series platform, designed to test System-on-a-Chip (“SOC”), System-in-a-Package (“SIP”) and high-speed memory devices; our V6000 Series platform, which is the successor to the V5000 platform, designed to test both flash memory and dynamic random access memory (“DRAM”) devices, and our V101 platform, designed to test highly cost-sensitive devices such as 4, 8 and 16-bit micro-controller units (“MCUs”) and consumer mixed-signal devices. We also design, manufacture and sell advanced MEMS (micro electro-mechanical system) based probe cards used in wafer-sort testing of memory devices.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. The accompanying financial data has been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Our fiscal year end is October 31, and our fiscal quarters end on January 31, April 30, July 31 and October 31. Unless otherwise stated, all dates refer to our fiscal years and fiscal periods. Amounts included in the accompanying condensed consolidated financial statements are expressed in U.S. dollars.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments—which are of a normal and recurring nature—necessary to fairly state the financial position, results of operations and cash flows for the dates and periods presented.

Principles of consolidation. The condensed consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated.

Use of estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions it believes to be reasonable. Although these estimates are based on management’s knowledge of current events and actions that may impact us in the future, actual results may be different from the estimates. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies are revenue recognition, restructuring, inventory valuation, warranty, share-based compensation, retirement and post-retirement plan assumptions, valuation of goodwill and long-lived assets, valuation of marketable securities and accounting for income taxes.

Transaction-Related Activities

On March 25, 2011, the Agreement and Plan of Merger, dated as November 17, 2010, by and among Verigy, Alisier Limited, a corporation organized under the laws of Singapore (“Holdco”), Lobster-1 Merger Corporation, a Massachusetts corporation and a wholly-owned subsidiary of Verigy, Lobster-2 Merger Corporation, a Massachusetts corporation and a wholly-owned subsidiary of Holdco, and LTX-Credence Corporation (“LTXC”), a Massachusetts corporation (the “Merger Agreement”), was terminated. A description of the material terms of the Merger Agreement can be found in the Current Report on Form 8-K filed by Verigy on November 18, 2010, and is incorporated herein by reference. In connection with the termination of the Merger Agreement, Verigy has paid LTXC a termination payment of $15 million.

On March 28, 2011 (Japan Time), Verigy Ltd., a corporation organized under the laws of Singapore (“Verigy”), entered into an Implementation Agreement with Advantest Corporation (“Advantest”), dated as of March 28, 2011 (the “Implementation Agreement”), that provides for all issued and outstanding ordinary shares of Verigy to be transferred to Advantest in exchange for US$15.00 per share in cash (the “Transaction”). In connection with the Transaction, Verigy filed a definitive proxy statement with the U.S. Securities and Exchange Commission (“SEC”) on May 20, 2011 and expects to hold a special meeting of shareholders on June 17, 2011 to approve the Transaction.

Revenue Recognition for Certain Arrangements with Software Elements and/or Multiple Deliverables

In October 2009, the FASB amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of industry-specific software revenue recognition guidance. Verigy adopted this accounting guidance at the beginning of its first fiscal quarter ended January 31, 2011 and the adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

In October 2009, the FASB also amended the accounting standards for multiple-deliverable revenue arrangements to:

•

provide updated guidance on how the deliverables in an arrangement should be separated, and how the consideration should be allocated;

•

eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and

•

require an entity to allocate revenue in an arrangement using estimated selling prices (“ESP”) of deliverables if it does not have vendor-specific objective evidence (“VSOE”) or third-party evidence (“TPE”) of selling price. Fair value terms are defined as follows:

•

VSOE – the price at which the Company sells the element in a separate stand-alone transaction.

•

TPE – evidence from the Company or other companies of the value of a largely interchangeable element in a transaction.

•

ESP – the Company’s best estimate of the selling price of an element in a transaction.

Verigy adopted this accounting guidance at the beginning of its first fiscal quarter ended January 31, 2011, and has applied the adoption prospectively to transactions originating or materially modified after November 1, 2010. The implementation resulted in additional qualitative disclosures that are included below but did not have a material impact on the Company’s financial position, results of operations or cash flows for the three or six month periods ending April 30, 2011. The adoption of the new standard did not change the units of accounting for Verigy’s revenue transactions.

Revenue is recognized when all of the following criteria have been met:

•

Persuasive evidence of an arrangement exists. We generally rely upon customer purchase orders, sales contracts, or other agreements to determine existence of an arrangement.

•

Delivery has occurred or services have been rendered. Delivery is considered to have occurred when title and risk of loss have transferred to the customer, for products, or when service has been performed. For sales or arrangements that include customer-specified acceptance criteria, including those where acceptance is required upon achievement of performance milestones or fulfillment of other future obligations, revenue is recognized after the acceptance criteria have been met. If the criteria are not met, then revenue is deferred until such criteria are met or until the period(s) over which the last undelivered element is delivered. To the extent that a contingent payment exceeds the fair value of the undelivered element, we defer the contingent payment.

•

Sales price is fixed or determinable. We consider the price to be fixed or determinable when the price is not subject to refund or adjustments.

•

Collectability is reasonably assured. At the time we take an order, we evaluate the creditworthiness of our customers to determine the appropriate timing of revenue recognition.

Product revenue. Our product revenue is generated predominantly from the sales of various types of test equipment. Software is embedded in many of our test equipment products and function together to deliver the product’s essential functionality. For sales or arrangements that include customer-specified acceptance criteria, including those where acceptance is required upon achievement of performance milestones or fulfillment of other future obligations, revenue is recognized after the acceptance criteria have been met. For products that include installation, if we have previously successfully installed similar equipment, product revenue is recognized upon delivery, and recognition of installation revenue is delayed until the installation is complete. Otherwise, neither the product nor the installation revenue is recognized until the installation is complete.

Service revenue. Revenue from services includes extended warranty, customer support, consulting, training and education. Service revenue is deferred and recognized over the contractual period or as services are rendered to the customer. For example, customer support contracts are recognized ratably over the contractual period, while training revenue is recognized as the training is provided to the customer. In addition, the four revenue recognition criteria described above must be met before service revenue is recognized.

Multiple element arrangements. For fiscal year 2011 and future periods, pursuant to the new guidance for revenue recognition with multiple deliverables, when a sales arrangement contains multiple elements and products and service components function together to deliver the tangible products’ essential functionality, Verigy allocates revenue to each element based on an estimated selling price. As Verigy’s products contain a significant element of proprietary technology and our solutions offer substantially different features and functionality, the comparable pricing of products with similar functionality typically cannot be obtained and are not sold on a stand-alone basis. In addition, we are unable to reliably determine what competitors products’ selling prices are on a stand-alone basis, and we are not typically able to determine TPE. The best estimate of selling price is established considering multiple factors including, but not limited to, pricing practices in different geographies, gross margin objectives, internal costs and competitor pricing strategies.

For transactions entered into prior to November 1, 2010, revenue for arrangements with multiple elements, such as sales of products that include services, was allocated to each element using the residual method based on the fair value of the undelivered items as determined using the prior guidance for revenue arrangements with multiple deliverables. Under the residual method, the amount of revenue allocated to delivered elements equals the total arrangement consideration less the aggregate fair value of any undelivered elements.

3.	RECENT ACCOUNTING PRONOUNCEMENTS

In January 2010, the FASB issued new accounting guidance that requires new disclosures related to fair value measurements. The new guidance requires expanded disclosures related to transfers between Level 1 and 2 activities and a gross presentation for Level 3 activity. The new accounting guidance is effective for fiscal years and interim periods beginning after December 15, 2009, except for the new disclosures related to Level 3 activities, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. The new guidance was effective for us in the second quarter of fiscal year 2010, except for the new disclosures related to Level 3 activities, which will be effective for us in the first quarter of fiscal year 2012. We are currently assessing the impact that the guidance may have on our condensed consolidated financial statements upon adoption in the first quarter of fiscal year 2012.

In December 2010, the FASB issued new accounting guidance for disclosure of supplementary pro forma information for business combinations, which provides amendments to business combinations. The objective of the new accounting guidance is to clarify and expand the pro forma revenue and earnings disclosure requirements for business combinations. The new guidance is effective for fiscal years beginning after December 15, 2010. The new guidance will be effective for us in the first quarter of fiscal year 2012. We are currently assessing the impact that the guidance may have on our condensed consolidated financial statements upon adoption in the first quarter of fiscal year 2012.

4.	FAIR VALUE MEASUREMENTS

We adopted accounting guidance for fair value measurements, which defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We also adopted accounting guidance for the fair value option for financial assets and financial liabilities, which permits entities to choose to measure many financial instruments and certain other items at fair value. As of April 30, 2011, we did not elect the fair value option for any financial assets and liabilities that were not previously measured at fair value.

The accounting guidance for fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1:

Valuations based on quoted prices in active markets for identical assets or liabilities as of the reporting date. Our Level 1 assets consist of various money market fund investments and certificate of deposits, all of which are traded in an active market with sufficient volume and frequency of transactions.

Level 2:

Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions, or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Our Level 2 assets and liabilities consist of derivative assets and liabilities, government agency securities and corporate debt securities which are priced using inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Our derivative liabilities were immaterial as of April 30, 2011.

Level 3:

Valuations based on unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. Our Level 3 assets consist of auction rate securities.

The following table sets forth our financial assets and liabilities that were measured at fair value on a recurring basis as of April 30, 2011:


	Fair Value Measurement as of April 30, 2011 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions)
Assets
Money market funds	$	169	$	—	$	—	$	169
Government agency securities		—		4		—		4
Certificate of deposits		22		—		—		22
Corporate debt securities		—		154		—		154
Auction rate securities		—		—		24		24
Derivative assets		—		6		—		6

Total assets measured at fair value	$	191	$	164	$	24	$	379

The amounts in the table above are reported in the condensed consolidated balance sheet as of April 30, 2011 as follows:


	Fair Value Measurement as of April 30, 2011 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions)
Assets
Cash equivalents	$	169	$	27	$	—	$	196
Short-term marketable securities		22		131		—		153
Long-term marketable securities		—		—		24		24
Other current assets		—		6		—		6

Total assets measured at fair value	$	191	$	164	$	24	$	379

The following table provides a summary of changes in fair value of our Level 3 financial assets as of April 30, 2011:


	Auction Rate Securities			Money Market Funds
	(in millions)
Balance as of October 31, 2010	$	38		$	1
Sale of investments		(14	)		—
Transfer out of level 3 to level 1 (1)		—			(1	)

Balance as of April 30, 2011	$	24		$	—

(1)

The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure.


	As of April 30, 2011
	(in millions)
	Carrying Value		Fair Value
Convertible senior notes due July 15, 2014	$	138	$	175

Total convertible notes	$	138	$	175

The fair value of the convertible notes at each balance sheet date is determined based on recent quoted market prices for these notes. (Also see Note 11, “Convertible Senior Notes”.)

5.	DERIVATIVES AND HEDGING ACTIVITIES

We use derivative instruments primarily to manage exposures to foreign currency. Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency. The program is not designated for trading or speculative purposes. Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading the risk across several major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis.

In accordance with accounting principles generally accepted in the U.S., we recognize derivative instruments as either assets or liabilities on the balance sheet at fair value. Changes in fair value (i.e. gains or losses) of the derivatives are recorded as cost of sales, operating expenses, other (expense) income, net, or as accumulated other comprehensive income (loss).

In fiscal year 2009, we adopted the accounting guidance for expanded disclosures relating to derivative instruments and hedging activities. The guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.

Cash Flow Hedges

We use forward contracts designated as cash flow hedges to hedge a portion of future forecasted purchases in Singapore dollar and the euro. Changes in the fair value of derivatives that do not qualify for hedge accounting treatment, as well as the ineffective portion of hedges, if any, are recognized in the condensed consolidated statement of operations. The effective portion of the foreign exchange gain (loss) is reported as a component of accumulated other comprehensive loss in shareholders’ equity and is reclassified into the statement of operations when the hedged transaction affects earnings. All amounts included in accumulated other comprehensive loss as of April 30, 2011 will generally be reclassified into earnings within twelve months. Changes in the fair value of foreign currency forward exchange due to changes in time value are excluded from the assessment of effectiveness and are recognized in earnings. If the transaction being hedged fails to occur, or if a portion of any derivative is deemed to be ineffective, we will recognize the gain (loss) on the associated financial instrument in other (expense) income, net in the statement of operations. We did not have any ineffective hedges during the periods presented. As of April 30, 2011, the total notional amount of outstanding forward contracts in place that hedged future purchases was approximately $35.6 million, based upon the exchange rate as of April 30, 2011. The forward contracts cover future purchases that are expected to occur over the next twelve months.

Balance Sheet Hedges

Other derivatives not designated as hedging instruments consists primarily of forward contracts to minimize the risk associated with the foreign exchange effects of remeasuring monetary assets and liabilities. Monetary assets and liabilities denominated in foreign currencies and the associated outstanding forward contracts are marked-to-market as of April 30, 2011, with realized and unrealized gains and losses included in other (expense) income, net. As of April 30, 2011, we had foreign currency forward contracts in place to hedge exposures in euro, Israeli shekel, Japanese yen, Singapore dollar, Malaysian ringgit, Canadian dollar, Korean won, Chinese yuan and the Taiwanese dollar. As of April 30, 2011, the total notional amount of outstanding forward contracts in place for foreign currency purchases was approximately $51.2 million and the total outstanding forward contracts in place for foreign currency sales was $26.1 million, based upon the exchange rates as of April 30, 2011.

For the three months ended April 30, 2011, non-designated foreign currency forward contracts resulted in a gain of $1.2 million. For the three months ended April 30, 2011, the remeasurement of the foreign currency exposures hedged by these forward contracts resulted in a loss of $1.2 million. For the six months ended April 30, 2011, non-designated foreign currency forward contracts resulted in a gain of $1.4 million. For the six months ended April 30, 2011, the remeasurement of the foreign currency exposures hedged by these forward contracts resulted in a loss of $2.0 million. All of the above noted gains and losses are included in other (expense) income, net in our condensed consolidated statements of operations.

The amounts in the tables below include fair value adjustments related to our own credit risk and counterparty credit risk.

Fair Value of Derivative Contracts

Fair value of derivative contracts was as follows:


	Derivative Assets Reported in Other Current Assets				Derivative Liabilities Reported in Other Current Liabilities
	April 30, 2011		October 31, 2010		April 30, 2011		October 31, 2010
	(in millions)
Foreign exchange contracts designated as cash flow hedges	$	4.6	$	2.9	$	—	$	—
Foreign exchange contracts not designated as cash flow hedges		0.9		0.7		—		0.2

Total derivatives costs	$	5.5	$	3.6	$	—	$	0.2

Effect of Designated Derivative Contracts on Accumulated Other Comprehensive Loss

The following table represents only the amounts recognized in other comprehensive loss for designated derivative contracts and the associated impact that was reclassified to the statement of operations as an (increase) decrease in cost of sales and operating expenses:


	Change Recognized in OCI (Effective Portion)				Location of Amounts Reclassified from Accumulated OCI into Earnings (Effective Portion)	Amounts Reclassified from Accumulated OCI into Earnings (Effective Portion)
	Three Months Ended April 30, 2011		Six Months Ended April 30, 2011			Three Months Ended April 30, 2011		Six Months Ended April 30, 2011
	(in millions)					(in millions)
Foreign exchange contracts	$	4.1	$	3.7	Cost of Sales	$	0.4	$	0.3
					Operating Expenses	$	0.9	$	0.8

Foreign exchange contracts designated as cash flow hedges relate to employee payroll and benefits as well as other costs primarily related to manufacturing and research and development. The associated gains and losses are expected to be recorded in cost of sales and operating expenses when reclassified from accumulated other comprehensive loss.

We expect to realize the accumulated other comprehensive income balance related to foreign exchange contracts within the next twelve months.

Effect of Designated Derivative Contracts on the Consolidated Statements of Operations

The effect of designated derivative contracts on the results of operations recognized as an (increase) decrease in cost of sales and operating expenses was as follows:


	Three Months Ended April 30,					Six Months Ended April 30,
	2011		2010			2011		2010
	(in millions)
Foreign exchange contracts designated as cash flow hedges	$	1.3	$	(0.7	)	$	1.1	$	0.3

Effect of Non-Designated Derivative Contracts on the Consolidated Statements of Operations

The effect of non-designated derivative contracts on the results of operations recognized in other (expense) income, net was as follows:


	Three Months Ended April 30,				Six Months Ended April 30,
	2011		2010		2011		2010
	(in millions)
Gain on foreign exchange contracts	$	1.2	$	0.5	$	1.4	$	0.8

6.	NET LOSS PER SHARE

The following is a reconciliation of the basic and diluted net loss per share computations for the periods presented below:


	Three Months Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
Basic Net Loss Per Share:
Net loss (in millions)	$	(40	)	$	(1	)	$	(45	)	$	(7	)
Weighted average number of ordinary shares (1)		60,766			59,353			60,608			59,249
Basic net loss per share	$	(0.66	)	$	(0.02	)	$	(0.74	)	$	(0.12	)
Diluted Net Loss Per Share:
Net loss (in millions)	$	(40	)	$	(1	)	$	(45	)	$	(7	)
Weighted average number of ordinary shares (1)		60,766			59,353			60,608			59,249
Potentially dilutive common stock equivalents—stock options, restricted share units and other employee stock plans (1) (2)		—			—			—			—

Total shares for purpose of calculating diluted net loss per share (1)		60,766			59,353			60,608			59,249

Diluted net loss per share	$	(0.66	)	$	(0.02	)	$	(0.74	)	$	(0.12	)

(1)	Weighted average shares are presented in thousands.

(2)

The dilutive effect of our convertible senior notes will be reflected in diluted net income per share by application of the if-converted method. The conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive. Also see Note 11, “Convertible Senior Notes.”

The dilutive effect of outstanding options and restricted share units is reflected in diluted net income per share, but not diluted loss per share, by application of the treasury stock method, which includes consideration of share-based compensation required by accounting principles generally accepted in the U.S.

The following table presents those outstanding options to purchase ordinary shares, restricted share units and convertible senior notes which were not included in the computation of diluted net loss per share because the effect of their inclusion was anti-dilutive:


	Three Months Ended April 30,				Six Months Ended April 30,
	2011		2010		2011		2010
	(in thousands)
Non-qualified Share Options:
Number of options to purchase ordinary shares		4,988		4,612		4,988		4,612
Restricted Share Units:
Number of restricted share units		1,356		1,674		1,356		1,674
Convertible Senior Notes:
Number of potential ordinary shares to be converted		10,526		10,526		10,526		10,526

7.	PROVISION FOR INCOME TAXES

For the three months ended April 30, 2011 and 2010, we recorded an income tax provision of approximately $1.7 million and $0.1 million, or effective tax rates of (4.5)% and (14.0)%, respectively. In addition, during the six months ended April 30, 2011 and 2010, we recorded an income tax provision of approximately $1.4 million and $0.3 million, or effective tax rates of (3.2)% and (4.9)%, respectively.

Our effective tax rate varies based on a variety of factors, including overall profitability, the geographical mix of income or loss before taxes and the related tax rates in the jurisdictions where we operate, restructuring and other one-time charges, as well as discrete events, such as settlements of future audits.

At April 30, 2011, the total unrecognized tax benefits of $19.8 million included approximately $0.5 million of unrecognized tax benefits that have been netted against the related deferred tax assets and $19.3 million of unrecognized tax benefits which are reflected in other long term liabilities.

Our continuing practice is to recognize interest and penalties related to income tax matters as a component of income tax expense. We have approximately $2.5 million of accrued interest and penalties as of April 30, 2011 and approximately $2.1 million of accrued interest and penalties as of April 30, 2010.

Although we file Singapore, U.S. federal, U.S. state and foreign income tax returns, our three major tax jurisdictions are Singapore, the U.S. and Germany. We are currently under audit in Germany and France for fiscal years 2006 to 2008 and 2008 to 2009, respectively. Our 2006 through 2010 tax years remain subject to examination by the tax authorities in most of our major tax jurisdictions.

8.	SHARE-BASED COMPENSATION

2006 Equity Incentive Plan

On June 7, 2006, our board of directors adopted the Verigy Ltd. 2006 Equity Incentive Plan (the “2006 EIP”). A total of 10,300,000 ordinary shares were authorized for issuance under the plan. The 2006 EIP provides for grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and restricted share units. On April 6, 2010, our shareholders approved an additional 3,000,000 ordinary shares to increase the maximum number of ordinary shares authorized for issuance under the 2006 EIP to 13,300,000 ordinary shares. As of April 30, 2011, there were approximately 3,700,000 ordinary shares available for new awards under the 2006 EIP and approximately 7,100,000 ordinary shares reserved for issuance for outstanding stock option and restricted share unit awards.

Except for replacement options granted in connection with Verigy’s separation from Agilent Technologies, Inc. (“Agilent”), employee nonqualified stock options have an exercise price of no less than 100% of the fair market value of an ordinary share on the date of grant and, generally, vest at a rate of 25% per year over 4 years. The maximum allowable term is 10 years. Restricted share units awarded to employees pay out in an equal number of ordinary shares and, generally, vest quarterly over 4 years. Options and restricted share units generally cease to vest upon termination of employment. If an employee terminates employment due to death, disability or retirement, the vested portion of the employee’s option and restricted share unit awards is determined by adding 12 months to the length of his or her actual service or full acceleration for Agilent replacement options. These vested awards are exercisable for one year after the date of termination or three years from the date of termination for Agilent replacement options, or, if earlier, the expiration of the term of the option.

Stock options granted to outside directors have a maximum term of 5 years. Options and restricted share units granted to outside directors vest in four equal quarterly installments from the grant date. Restricted share units granted to outside directors are paid out on the third anniversary of the grant date. All awards granted to an outside director become fully vested upon the director’s termination of services if due to death, disability, retirement at or after age 65, or if in connection with a change in control.

Restricted share units are paid out in an equal number of ordinary shares upon vesting for employee awards and three years from the grant date for non-employee director awards. With respect to a majority of the awards, shares are withheld to cover the tax withholding obligation. As a result, the actual number of shares issued will be less than the number of restricted share units granted. Prior to vesting, restricted share units do not have dividend, voting or other rights associated with ordinary shares.

2006 Employee Shares Purchase Plan

On June 7, 2006, our board of directors adopted the 2006 Employee Shares Purchase Plan (the “Purchase Plan”). The Purchase Plan is intended to qualify for favorable tax treatment under section 423 of the U.S. Internal Revenue Code. The total number of shares that were authorized for purchase under the plan was 1,700,000. On April 6, 2010, our shareholders approved an additional 1,500,000 ordinary shares to increase the maximum number of ordinary shares authorized for issuance under the Purchase Plan to 3,200,000 ordinary shares.

Under the Purchase Plan, eligible employees may elect to purchase shares from payroll deductions up to 10% of eligible compensation during 6-month offering periods. The purchase price is (i) 85% of the fair market value per ordinary share on the trading day before the beginning of an offering period or (ii) 85% of the fair market value per ordinary share on the last trading day of an offering period, whichever is lower. The maximum number of shares that an employee can purchase is 2,500 shares each offering period and $25,000 in fair market value of ordinary shares each calendar year.

As of April 30, 2011, a cumulative plan total of 2,453,188 ordinary shares had been issued since inception as a result of purchases made by participants in our Purchase Plan, including 398,587 shares issued in the first quarter of fiscal year 2011.

Share-Based Compensation for Verigy Options and Purchase Plan

We adopted accounting guidance for share-based compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock option awards, restricted share units and employee share purchases made under the Purchase Plan.

We have recognized compensation expense based on the estimated grant date fair value method required under the accounting guidance using a straight-line amortization method. As the accounting guidance requires that share-based compensation expense be based on awards that are ultimately expected to vest, estimated share-based compensation is reduced for estimated forfeitures. We expense restricted share units based on fair market value of the shares at the date of grant over the period during which the restrictions lapse.

Share-Based Award Activity

The following table summarizes stock option activity during the six months ended April 30, 2011:


	Options
	Shares			Weighted Average Exercise Price
	(in thousands)
Outstanding as of October 31, 2010		4,575		$	14.09
Granted		619		$	9.45
Exercised (1)		(116	)	$	10.07
Cancelled / Expired		(90	)	$	19.65

Outstanding as of April 30, 2011		4,988		$	13.51

(1)	The total pretax intrinsic value of stock options exercised during the six months ended April 30, 2011 was immaterial.

The following table summarizes restricted share unit activity during the six months ended April 30, 2011:


	Restricted Share Units (RSU)
	Shares			Weighted Average Grant Date Share Price
	(in thousands)
Outstanding as of October 31, 2010		1,735		$	12.31
Granted		808		$	11.83
Vested and paid out		(402	)	$	14.21
Forfeited		(70	)	$	12.36

Outstanding as of April 30, 2011 (2) (3)		2,071		$	11.75

For the majority of restricted stock units granted, the number of shares issued on the date the restricted stock units vest is net of the statutory withholding requirements that we pay on behalf of our employees. During the six months ended April 30, 2011, we withheld approximately 127,000 ordinary shares to satisfy $1.5 million of employees’ tax obligations.

The following table summarizes information about all outstanding stock options to purchase ordinary shares of Verigy at April 30, 2011:


	Options Outstanding
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Aggregate Intrinsic Value
	(in thousands)						(in thousands)
$6.49 — 15.00		3,397		4.28 years	$	11.01	$	12,147
$15.01 — 20.00		1,210		3.57 years	$	16.62		—
$20.01 — 25.00		84		3.24 years	$	24.04		—
$25.01 — 30.00		297		2.80 years	$	26.44		—

		4,988		4.00 years	$	13.51	$	12,147

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on Verigy’s closing stock price of $14.46 on April 29, 2011, which would have been received by award holders had all award holders exercised their awards (both vested and unvested) that were in-the-money as of that date. As of April 30, 2011, approximately 3,600,000 outstanding options were vested and exercisable and the weighted average exercise price was $14.62. The total number of exercisable stock options that were in-the-money was approximately 1,300,000, and the weighted average exercise price per share of the in-the-money options was $9.81.

The following table summarizes information about all outstanding restricted share unit awards of Verigy ordinary shares at April 30, 2011:


	Restricted Share Units Outstanding
Range of Grant Date Share Prices	Number Outstanding		Weighted Average Grant Date Share Price
	(in thousands)
$6.46 — 15.00 (2)		1,925	$	10.98
$15.01 — 20.00 (3)		9	$	18.45
$20.01 — 25.00		105	$	20.92
$25.01 — 30.00		32	$	26.22

		2,071	$	11.75

(2)	The outstanding restricted share units as of April 30, 2011 include approximately 85,000 fully vested units held by outside directors.

(3)	The outstanding restricted share units as of April 30, 2011 include approximately 6,000 fully vested units held by outside directors.

As of April 30, 2011, the total grant date fair value of our outstanding restricted share units was approximately $24.3 million and the aggregate market value of the ordinary shares underlying the outstanding restricted share units was $29.9 million.

Share-Based Compensation

The impact on our results for share-based compensation for Verigy options, restricted share units and employee share purchases made under the Purchase Plan for the three and six months ended April 30, 2011 and 2010, respectively, was as follows:


	Three Months Ended April 30,				Six Months Ended April 30,
	2011		2010		2011		2010
	(in millions)
Cost of products and services	$	0.7	$	0.8	$	1.5	$	1.6
Research and development		0.5		0.6		1.0		1.0
Selling, general and administrative		2.5		3.6		8.5		7.0

Total share-based compensation expense	$	3.7	$	5.0	$	11.0	$	9.6

For the three and six months ended April 30, 2011 and 2010, share-based compensation capitalized within inventory was insignificant.

The weighted average grant date fair value of Verigy options granted during the three and six months ended April 30, 2011, was $4.70 and $3.94 per share, respectively, and was determined using the Black-Scholes option pricing model. The weighted average grant date fair value of Verigy options granted during the three and six months ended April 30, 2010, was $4.39 and $4.45 per share, respectively, and was determined using the Black-Scholes option pricing model. The tax benefit realized from equity compensation for the three and six months ended April 30, 2011 and 2010 was insignificant.

As of April 30, 2011 and 2010, the total compensation cost related to share-based awards not yet recognized, net of expected forfeitures, was approximately $23.2 million and $29.9 million, respectively. We expect to recognize the compensation cost related to these share-based awards over a weighted average of 2.68 years.

Valuation Assumptions for Verigy Options

The fair value of Verigy options granted during the three and six months ended April 30, 2011 and 2010 was estimated at grant date using a Black-Scholes options-pricing model with the following weighted average assumptions:


	Three Months Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
Risk-free interest rate for options		1.86	%		2.23	%		1.50	%		2.08	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Volatility for options		40.5	%		48.1	%		48.9	%		48.2	%
Expected option life		4.50 years			4.31 years			4.50 years			4.39 years

Valuation Assumptions for the Purchase Plan


	Three Months Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
Risk-free interest rate for ESPP		0.20	%		0.25	%		0.20	%		0.25	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Volatility for ESPP		48.1	%		49.2	%		48.1	%		49.2	%
Expected ESPP life		6 months			6 months			6 months			6 months

The Black-Scholes model requires the use of highly subjective and complex assumptions, including the option’s expected life and the price volatility of the underlying ordinary shares. The price volatility of our share price was determined on the date of grant using a combination of the average daily historical volatility and the average implied volatility of publicly traded options for our ordinary shares. Management believes that using a combination of historical and implied volatility is the most appropriate measure of the expected volatility of our share price. Because we have limited historical data, we used data from peer companies to determine our assumptions for the expected option life. For the risk-free interest rate, we used the rate of return on U.S. Treasury Strips as of the grant dates.

9.	ORDINARY SHARE REPURCHASES

2008 Repurchase Plan

On April 15, 2008, at our 2008 annual general meeting of shareholders, our shareholders approved our repurchase of up to 10 percent of Verigy’s outstanding ordinary shares, or approximately 6 million ordinary shares (the “2008 Repurchase Plan”). The 2008 Repurchase Plan was effective through the 2009 annual general meeting of shareholders.

2009 Repurchase Plan

On April 14, 2009, at our 2009 annual general meeting of shareholders, our shareholders approved a resolution to renew the share repurchase program to extend through the 2010 annual general meeting of shareholders (the “2009 Repurchase Plan”). This approval allowed the repurchase of up to 10 percent of Verigy’s outstanding ordinary shares, or approximately 6 million ordinary shares, incremental to the ordinary shares repurchased through the 2008 Repurchase Plan. The 2009 Repurchase Plan was effective through our 2010 annual general meeting of shareholders.

2010 Repurchase Plan

On April 6, 2010, at our 2010 annual general meeting of shareholders, our shareholders approved a resolution to renew the share repurchase program to extend through the 2011 annual general meeting of shareholders (the “2010 Repurchase Plan”). This approval allows the repurchase of up to 10 percent of Verigy’s outstanding ordinary shares, or approximately 6 million ordinary shares, incremental to the ordinary shares repurchased through the 2009 Repurchase Plan. The 2010 Repurchase Plan was effective through our 2011 annual general meeting of shareholders.

We repurchased 2.8 million ordinary shares for approximately $55 million with a weighted average price per share of $19.25 under the 2008 and 2009 Repurchase Plans as of October 31, 2009. We did not repurchase any ordinary shares during fiscal year ending October 31, 2010 through the six months ended April 30, 2011. All repurchased shares are immediately retired and are available for future resale.

10.

COMPREHENSIVE LOSS

The components of comprehensive loss, net of tax, are as follows:


	Three Months Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
	(in millions)
Net loss	$	(40	)	$	(1	)	$	(45	)	$	(7	)
Other comprehensive income (loss):
Foreign currency translation adjustments		1			1			2			1
Change in minimum pension liability, net of tax		—			—			—			1
Change in unrealized gains (losses) on derivative instruments qualifying as cash flow hedges, net of tax		2			(1	)		2			(3	)

Total comprehensive loss	$	(37	)	$	(1	)	$	(41	)	$	(8	)

11.

CONVERTIBLE SENIOR NOTES

On July 15, 2009, we issued $138 million of convertible senior notes (the “notes”). The notes will mature on July 15, 2014, and bear interest at a fixed rate of 5.25% per annum. The interest is payable semi-annually on January 15^th and July 15^th of each year and payments commenced on January 15, 2010. We incurred issuance costs of $5 million in connection with the senior notes. These costs were capitalized in other assets on the consolidated balance sheet, and the costs are being amortized to interest expense over the term of the senior notes using the effective interest method. The initial conversion rate for the notes is 76.2631 ordinary shares per $1,000 principal amount, equal to a conversion price of approximately $13.11 per ordinary share. This conversion rate is subject to adjustment in some events, but will not be adjusted for accrued interest. Holders may convert their notes at any time prior to the maturity date.

We may not redeem the notes prior to July 20, 2012, except upon the occurrence of certain tax-related events. On or after July 20, 2012, we may redeem for cash all or part of the notes if the last reported sale price per ordinary share has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending within five trading days prior to the date on which we provide notice of redemption. The redemption price will equal 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, up to the date of redemption.

If we undergo a fundamental change, for instance if we were to be acquired, subject to certain conditions, holders may require us to purchase their notes in whole or in part for cash at a purchase price equal to 100% of the principal amount being purchased, plus accrued and unpaid interest, up to the date of purchase. In addition, upon the occurrence of a fundamental change, for holders who elect to convert their notes in certain circumstances, we will increase the conversion rate not to exceed 95.3288 per $1,000 principal amount, equal to a conversion price of $10.49 per ordinary share. Upon default, holders of at least 25% of the convertible notes can declare 100% of the principal and accrued and unpaid interest to become due and payable. In the event of insolvency or bankruptcy, the aggregate principal and accrued and unpaid interest automatically become due and payable.

12.

MARKETABLE SECURITIES

We account for our short-term marketable securities in accordance with accounting principles generally accepted in the U.S. In fiscal year 2009, we adopted the accounting guidance for recognition and presentation of other-than-temporary impairments. This accounting guidance is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. The accounting guidance also requires increased and more timely disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses.

We classify our marketable securities as available for sale at the time of purchase and re-evaluate such designation as of each condensed consolidated balance sheet date. We amortize premiums and discounts against interest income over the life of the investment. Our marketable securities are classified as cash equivalents if the original maturity, from the date of purchase, is ninety days or less. We record other-than-temporary impairment charges in earnings representing both credit and non-credit losses for those investments that we intend to sell or more likely than not would be required to sell before recovery of the amortized cost basis.

Our marketable securities include commercial paper, corporate bonds, government securities, money market funds and auction rate securities. Auction rate securities are securities that are structured with interest rate reset periods of generally less than ninety days but with contractual maturities that can be well in excess of 10 years. At the end of each interest rate reset period, investors can buy, sell or continue to hold the securities at par. As of April 30, 2011, all of our auction rate securities have experienced failed auctions. The funds associated with these auctions will not be accessible to us until a successful auction occurs, a buyer is found outside of the auction process, or the underlying securities have matured or are called by the issuer. Given the ongoing disruptions in the credit markets and the fact that the liquidity for these types of securities remains uncertain, we have classified all of our auction rate securities as long-term assets in our condensed consolidated balance sheet as of April 30, 2011, as our ability to liquidate such securities in the next 12 months is uncertain.

Our auction rate securities consist of investments that are backed by pools of student loans guaranteed by the U.S. Department of Education and other asset-backed securities. Our marketable securities portfolio as of April 30, 2011 had a carrying value of $373 million, of which approximately $24 million consisted of illiquid auction rate securities. Given the ongoing disruption in the market for auction rate securities, there is no longer an actively quoted market price for these securities. Accordingly, we utilized a model to estimate the fair value of these auction rate securities based on, among other items: (i) the underlying structure of each security and the underlying collateral quality; (ii) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions; (iii) consideration of the probabilities of default, auction failure or repurchase at par for each period; and (iv) estimates of the recovery rates in the event of default for each security. These estimated fair values could change significantly based on future market conditions.

We evaluate our investments periodically for possible other-than-temporary impairment by reviewing factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and insurance guarantor, and our ability and intent to hold the investment for a period of time sufficient for anticipated recovery of market value. Based on an analysis of other-than-temporary impairment factors, we did not record any unrealized gain or loss within accumulated other comprehensive loss for the three months ended April 30, 2011. We recorded a net unrealized loss within accumulated other comprehensive loss of approximately $0.6 million, primarily for our auction rate securities that are backed by pools of student loans for the six months ended April 30, 2011.

Investments in money market funds have included investments in the Reserve Primary Funds and the Reserve International Liquidity Fund (collectively referred to as the “Reserve Funds”). The net asset value for the Reserve Funds fell below $1 because the funds had holdings of commercial paper and other notes with a major investment bank which filed for bankruptcy on September 15, 2008. We received the final distribution from our investment in the Reserve Primary Fund during the fiscal year ended October 31, 2010. We received the final distribution of payment on the International Reserve fund during the three months ended April 30, 2011. The settlement amount was higher than the carrying value on our books and thus we recorded a realized gain of $0.9 million during the six months ended April 30, 2011, recorded within other (expense) income, net in the condensed consolidated statement of operations. We also recognized a realized gain on the sale of long-term investments for the six months ended April 30, 2011 of $0.7 million, recorded within other (expense) income, net in the condensed consolidated statement of operations.

The following table summarizes our marketable security investments as of April 30, 2011:


	Cost		Gross Unrealized Gains (Losses)			Estimated Fair Market Value
			(in millions)
Cash equivalents and short-term marketable securities:
Money market funds	$	169	$	—		$	169
Certificate of deposits		22		—			22
U.S. government agency securities		4		—			4
Corporate debt securities		154		—			154

Total cash equivalents and short-term marketable securities	$	349	$	—		$	349

Long-term marketable securities:
Auction rate securities	$	25	$	(1	)	$	24

Total long-term available for sale investments	$	25	$	(1	)	$	24

As Reported:
Cash equivalents						$	196
Short-term marketable securities							153
Long-term marketable securities							24

Total at April 30, 2011						$	373

The following table summarizes our marketable security investments as of October 31, 2010:


	Cost		Gross Unrealized Gains (Losses)		Estimated Fair Market Value
			(in millions)
Cash equivalents and short-term marketable securities:
Money market funds	$	226	$	—	$	226
Certificate of deposits		17		—		17
U.S. government agency securities		26		—		26
Corporate debt securities		110		—		110

Total cash equivalents and short-term marketable securities	$	379	$	—	$	379

Long-term marketable securities:
Auction rate securities	$	38	$	—	$	38

Total long-term available for sale investments	$	38	$	—	$	38

As Reported:
Cash equivalents					$	244
Short-term marketable securities						135
Long-term marketable securities						38

Total at October 31, 2010					$	417

The amortized cost, which is net of other-than-temporary impairment losses, and estimated fair value of cash equivalents and marketable securities classified as available for sale as of April 30, 2011 are shown in the table below by their contractual maturity dates:


	Cost		Gross Unrealized Gains (Losses)			Estimated Fair Market Value
			(in millions)
Less than 1 year	$	289	$	—		$	289
Due in 1 to 2 years		60		—			60
Due after 2 years		25		(1	)		24

Total at April 30, 2011	$	374	$	(1	)	$	373

13.

INVENTORY

Inventory, net of related reserves, consists of the following:


	April 30, 2011		October 31, 2010
	(in millions)
Raw materials	$	51	$	38
Finished goods		42		47

Total inventory	$	93	$	85

There were approximately $25 million of demonstration products included in finished goods inventory as of April 30, 2011, and $30 million as of October 31, 2010.

The total cost of products in the condensed consolidated statements of operations for the three months ended April 30, 2011 and 2010 included gross inventory-related provisions of $10.2 million and $1.3 million, respectively, for excess and obsolete inventory at our sites, as well as inventory at our contract manufacturers and suppliers where we have non-cancelable purchase commitments. In addition, our gross margins were favorably impacted by the sale of previously written down inventory of $1.4 million and $1.5 million, respectively, for the same periods.

For the six months ended April 30, 2011 and 2010 total cost of products included gross inventory-related provisions of $11.4 million and $3.1 million, respectively, for excess and obsolete inventory. In addition, our gross margins were favorably impacted by the sale of previously written down inventory of $2.9 million and $5.6 million, respectively, for the same periods.

14.

PROPERTY, PLANT AND EQUIPMENT, NET


	April 30, 2011			October 31, 2010
	(in millions)
Leasehold improvements	$	14		$	14
Software		21			21
Machinery and equipment		85			79

Total property, plant and equipment		120			114
Accumulated depreciation		(77	)		(69	)

Total property, plant and equipment, net	$	43		$	45

We recorded approximately $6 million and $5 million of depreciation and amortization expense for the three months ended April 30, 2011 and 2010, respectively. We recorded approximately $11 million and $10 million of depreciation and amortization expense for the six months ended April 30, 2011 and 2010, respectively.

15.

OTHER (EXPENSE) INCOME, NET

The following table presents the components of other (expense) income, net for the three and six months ended April 30, 2011 and 2010:


	Three Months Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
	(in millions)
Interest and other income	$	1		$	1		$	4		$	2
Interest expense		(2	)		(2	)		(4	)		(4	)
Net foreign currency loss		—			—			(1	)		—

Other (expense) income, net	$	(1	)	$	(1	)	$	(1	)	$	(2	)

Other (expense) income, net consists primarily of interest on cash, cash equivalents and investments, gain on sale of investments, and money market fund redemptions and interest expense primarily related to our convertible senior notes. Other (expense) income, net also includes gains and losses from the remeasurement of assets and liabilities denominated in currencies other than the functional currency, as well as gains and losses on foreign exchange balance sheet hedge transactions. These transactions are intended to offset foreign exchange gains and losses from remeasurement, which are generally for a period of 30 days or less and settled by the end of the month.

We received the final distribution of payment on the International Reserve fund during the three months ended April 30, 2011. The settlement amount was higher than the carrying value on our books and thus we recorded a realized gain of $0.9 million during the six months ended April 30, 2011, recorded within other (expense) income, net in the condensed consolidated statement of operations. We also recognized a realized gain on the sale of long-term investments for the six months ended April 30, 2011 of $0.7 million, recorded within other (expense) income, net in the condensed consolidated statement of operations.

16.

GOODWILL AND OTHER LONG-LIVED ASSETS

Our goodwill balance represents an allocation of goodwill recorded during the 2006 separation from Agilent. Our goodwill balance was $13 million as of April 30, 2011 and as of October 31, 2010. We review our goodwill for impairment annually in the fourth quarter of our fiscal year, or more frequently if impairment indicators arise. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income approach that uses discounted cash flows and the market approach that utilizes comparable companies’ data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss. We have two reporting units for which we assess goodwill for impairment.

We recorded $2 million of intangible assets related to our acquisition of Touchdown Technologies, with a weighted-average amortization period of 4 years. These assets are being amortized on a straight-line basis with an estimated future amortization expense of approximately $0.5 million a year. Intangibles assets as of April 30, 2011 were approximately $1 million. We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the undiscounted future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

17.

GUARANTEES

Standard Warranty

A summary of our standard warranty accrual activity for the six months ended April 30, 2011 and 2010 is shown in the table below:


	Six Months Ended April 30,
	2011			2010
	(in millions)
Beginning balance at November 1,	$	3		$	3
Accruals for warranties issued during the period		2			2
Accruals related to pre-existing warranties (including changes in estimates)		1			(2	)
Settlements made during the period		(3	)		(1	)

Ending balance at April 30,	$	3		$	2

The standard warranty accrual is included within other current liabilities in our condensed consolidated balance sheets.

Also see Note 21, “Other Current Liabilities and Other Long-Term Liabilities.”

Extended Warranty

A summary of our deferred revenue activity related to extended warranty agreements for the six months ended April 30, 2011 and 2010 is shown in the table below:


	Six Months Ended April 30,
	2011			2010
	(in millions)
Beginning balance at November 1,	$	7		$	8
Revenue recognized during the period		(2	)		(4	)
Deferral of revenue for new contracts		2			2

Ending balance at April 30,	$	7		$	6

In our condensed consolidated balance sheets, current deferred revenue is presented separately and long-term deferred revenue is included in other long-term liabilities. See Note 21, “Other Current Liabilities and Other Long-Term Liabilities.”

Indemnifications

As is customary in our industry and provided for in local law in the U.S. and other jurisdictions, many of our standard contracts provide remedies to our customers and others with whom we enter into contracts, such as defense, settlement or payment of judgment for intellectual property claims related to the use of our products. From time to time, we indemnify customers, as well as our suppliers, contractors, lessors, lessees and others with whom we enter into contracts, against combinations of loss, expense or liability arising from various triggering events related to the sale or the use of our products, the use of their goods and services, the use of facilities and state of our owned facilities and other matters covered by such contracts, usually up to a specified maximum amount. In addition, from time to time, we also provide protection to these parties against claims related to undiscovered liabilities, additional product liability or environmental obligations.

Under the agreements we entered into with Agilent at the time of the separation, we will indemnify Agilent in connection with our activities conducted prior to and following our separation from Agilent in connection with our businesses and the liabilities that we specifically assumed under the agreements we entered into in connection with the separation. These indemnification obligations cover a variety of aspects of our business, including, but not limited to, employee, tax, intellectual property and environmental matters.

18.

TRANSACTION-RELATED COSTS

Transaction-related costs include costs incurred directly related to the activities with LTX-Credence and with Advantest. These costs consist primarily of the $15 million break-up fee incurred to terminate the merger agreement signed with LTX-Credence on November 17, 2010, third party costs for legal, accounting and consulting fees as well as expenses related to a separation agreement with a key employee. Transaction-related costs included approximately $3.2 million of share-based compensation for the six months ended April 30, 2011. Also see Note 2, “Summary of Significant Accounting Policies.”

The following table presents the components of the transaction-related costs incurred for the three and six months ended April 30, 2011 and 2010:


	Three Months Ended April 30,				Six Months Ended April 30,
	2011		2010		2011		2010
	(in millions)
Break-up fee paid to LTX-Credence	$	15	$	—	$	15	$	—
Legal costs		7		—		9		—
Bankers fee		—		—		1		—
Accounting and other consulting costs		1		—		2		—
Separation costs with a key employee		—		—		5		—

Transaction-related costs	$	23	$	—	$	32	$	—

19.

RESTRUCTURING

As of April 30, 2011, we had approximately $3.0 million of accrued restructuring liability included within other current liabilities on our condensed consolidated balance sheet. The accrual primarily relates to severance and benefit payments for restructuring actions implemented in fiscal year 2011. These payments are expected to be made by the end of fiscal year 2011.

The total charge for the three and six months ended April 30, 2011 for our restructuring actions and accelerated depreciation related to fixed assets that are no longer being used was approximately $3.0 million and $3.4 million, respectively. Approximately $1.3 million was recorded within cost of sales in the respective periods and the remainder of which was recorded within operating expenses.

The table below summarizes the impact to the statement of operations resulting from all restructuring actions for the three and six months ended April 30, 2011 and 2010 is shown below:


	Three Months Ended April 30,				Six Months Ended April 30,
	2011		2010		2011		2010
	(in millions)
Restructuring charges (included in cost of sales)	$	1.3	$	0.5	$	1.3	$	0.8
Restructuring charges (included in operating expenses)		1.7		0.6		2.1		1.6

Total restructuring charges	$	3.0	$	1.1	$	3.4	$	2.4

A summary of restructuring activity for all restructuring actions through April 30, 2011 is shown in the table below:


	Workforce Reduction
	(in millions)
Beginning balance at November 1, 2010	$	3.5
Total charges		3.4
Cash payments		(2.8	)
Other		(1.1	)

Ending balance at April 30, 2011	$	3.0

20.

RETIREMENT PLANS AND POST-RETIREMENT BENEFITS

We recognize the funded status of our defined benefit postretirement plans on our condensed consolidated balance sheets, and our changes in the funded status are reflected in comprehensive income.

General. Substantially all of our employees are covered under various Verigy defined benefit and/or defined contribution plans. Additionally, we sponsor retiree medical accounts for certain eligible U.S. employees.

U.S. Retirement and Post-retirement Health Care Benefits for U.S. Employees

Effective June 1, 2006, we established a defined contribution benefit plan (“Verigy 401(k) plan”) for our U.S. employees. Our 401(k) plan provides matching contribution of up to 4% of eligible compensation. Eligible compensation consists of base and variable pay. In addition, we also offer a profit sharing plan for our U.S. employees, whereby we may make a maximum 2% contribution to the employee’s 401(k) plan if certain annual financial targets are achieved. A small number of our U.S. employees meeting certain age and service requirements will also receive an additional 2% profit sharing contribution to their 401(k) plan accounts if certain annual financial targets are achieved.

For the three and six months ended April 30, 2011, our matching expenses for our U.S. employees under the Verigy 401(k) plan were $0.7 million and $1.2 million, respectively, compared to $0.5 million and $0.9 million in the comparable periods in fiscal year 2010. We did not incur any expense for the Verigy profit sharing plans for both periods presented.

Prior to the separation, Agilent had sponsored post-retirement health care benefits and a death benefit under the Retiree Survivor’s Benefit Plan for our eligible U.S. employees. At June 1, 2006, the present value of our responsibility for the retiree medical benefit obligation was approximately $2.3 million. We are ratably recognizing this obligation over a period of 6.4 years, the shorter of the estimated average working lifetime or retirement eligibility of these employees. Effective June 1, 2006, Verigy made available certain retiree benefits to U.S. employees meeting certain age and service requirements upon termination of employment through Verigy’s Retiree Medical Account (RMA) Plan. For the three and six months ended April 30, 2011 and 2010, the amount of expenses recognized under the RMA plan for both periods presented was approximately $0.1 million and $0.3 million, respectively. There are no plan assets related to these obligations, and we currently do not have any plans to make any contributions.

Non-U.S. Retirement Benefit Plans. Eligible employees outside the U.S. generally receive retirement benefits under various retirement plans based upon factors such as years of service and employee compensation levels. Eligibility is generally determined in accordance with local statutory requirements.

Costs for All U.S. and Non-U.S. Plans. The following tables summarize the principal components of total costs associated with the retirement-related benefit plans of Verigy for the three and six months ended April 30, 2011 and 2010:


	U.S. Plans				Non-U.S. Plans				Total
	Three Months Ended April 30,
	2011		2010		2011		2010		2011		2010
	(in millions)
Defined benefit pension plan costs	$	—	$	—	$	1.4	$	0.9	$	1.4	$	0.9
Defined contribution pension plan costs		0.7		0.5		0.3		0.2		1.0		0.7
Non-pension post-retirement benefit costs		0.1		0.1		—		—		0.1		0.1

Total retirement-related plans costs	$	0.8	$	0.6	$	1.7	$	1.1	$	2.5	$	1.7


	U.S. Plans				Non-U.S. Plans				Total
	Six Months Ended April 30,
	2011		2010		2011		2010		2011		2010
	(in millions)
Defined benefit pension plan costs	$	—	$	—	$	2.9	$	1.8	$	2.9	$	1.8
Defined contribution pension plan costs		1.2		0.9		0.6		0.4		1.8		1.3
Non-pension post-retirement benefit costs		0.3		0.3		—		—		0.3		0.3

Total retirement-related plans costs	$	1.5	$	1.2	$	3.5	$	2.2	$	5.0	$	3.4

Non-U.S. Defined Benefit. For the three and six months ended April 30, 2011 and 2010, the net pension costs related to participation in our non-U.S. defined benefit plans were comprised of:


	Three Months Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
	(in millions)
Service cost — benefits earned during the year	$	0.9		$	0.8		$	2.1		$	1.4
Interest cost on benefit obligation		1.0			0.8			1.9			1.7
Expected return on plan assets		(0.8	)		(0.7	)		(1.6	)		(1.4	)
Actuarial loss		0.3			—			0.5			0.1

Total net plan costs	$	1.4		$	0.9		$	2.9		$	1.8

We made approximately $5 million of contributions for the retirement plans during the six months ended April 30, 2011.

Measurement date. We use October 31 as the measurement date to measure our plan assets and benefit obligations for all of our non-U.S. plans and U.S. retiree medical account.

21.

OTHER CURRENT LIABILITIES AND OTHER LONG-TERM LIABILITIES

Other current liabilities as of April 30, 2011 and October 31, 2010, were as follows:


	April 30, 2011		October 31, 2010
	(in millions)
Supplier liabilities	$	11	$	6
Restructuring accrual		3		4
Accrued warranty costs		3		3
Leases payable		—		1
Interest payable		2		2
Other		2		2

Total other current liabilities	$	21	$	18

Supplier liabilities reflect the amount by which our firmly committed inventory purchases from our suppliers exceed our current forecasted production and service and support needs. Also see Note 17, “Guarantees” for additional information regarding warranty accruals and Note 19, “Restructuring” for additional information regarding our restructuring accrual.

Other long-term liabilities as of April 30, 2011 and October 31, 2010, were as follows:


	April 30, 2011		October 31, 2010
	(in millions)
Long-term extended warranty and deferred revenue	$	3	$	3
Retirement plan accruals		40		41
Deferred acquisition credit		6		6
Long-term deferred compensation accrual		11		10

Total other long-term liabilities	$	60	$	60

Also see Note 20, “Retirement Plans and Post-Retirement Benefits” for additional information regarding retirement plan accruals.

22.

COMMITMENTS AND CONTINGENCIES

As of April 30, 2011, there was no material change in our capital lease obligations, operating lease obligations, purchase obligations or any other long-term liabilities reflected on our condensed consolidated balance sheets as compared to such obligations and liabilities as of October 31, 2010.

Rent expense was $1.6 million and $1.7 million for the three months ended April 30, 2011 and 2010, respectively, and $3.4 million for both the six months ended April 30, 2011 and 2010.

From time to time, we are involved in lawsuits, claims, investigations and proceedings, which arise in the ordinary course of business. As of April 30, 2011, there were no matters that impacted our condensed consolidated financial statements.

23.

SEGMENT & GEOGRAPHIC INFORMATION

The accounting principles generally accepted in the U.S. require us to identify the segment or segments we operate in. We have two operating segments, SOC test systems and memory test systems, which we report as two reportable segments. All historical segment numbers for the three and six months ended April 30, 2010 were presented to conform to the three and six months ended April 30, 2011.

A description of our two reportable segments is as follows:

•

Our SOC/SIP/High-speed memory test business provides solutions designed to test very complex, highly integrated semiconductors such as SOCs and SIPs, as well as testers for testing less complex semiconductors such as MCUs. SOCs and SIPs are semiconductors that integrate the functionality of multiple individual ICs onto a single IC or package, and often contain both digital and analog functionalities, including radio frequency (“RF”) capabilities, communication interfaces and embedded memory.

•

Our memory business provides solutions designed to test semiconductors designed to store user data such as DRAM, including DDR3 and flash memory, including both NAND and NOR flash. In addition, our memory business includes probe cards used in wafer-sort testing of memory devices.

In addition to the products, we also provide a range of services to assist our customers in achieving the necessary time-to-volume manufacturing, required of the competitive end-use markets related for both of these businesses.

A significant portion of the segments’ expenses arise from shared services and infrastructure that we have historically provided to the segments in order to realize economies of scale and to efficiently use resources. These expenses, collectively called corporate charges, include costs of centralized research and development, legal, accounting, real estate, insurance services, information technology services, treasury and other corporate infrastructure expenses. Charges are allocated to the segments and are reassessed on an annual basis. The allocations have been determined on a basis that we considered to be a reasonable reflection of the utilization of services provided to or benefits received by the segments.


	SOC/SIP/ High-Speed Memory		Memory			Total Segments
	(in millions)
Three months ended April 30, 2011:
Net revenue from products	$	75	$	2		$	77
Net revenue from services		31		4			35

Total net revenue	$	106	$	6		$	112

Income (loss) from operations(1)	$	8	$	(9	)	$	(1	)
Depreciation expense	$	2	$	1		$	3
Three months ended April 30, 2010:
Net revenue from products	$	83	$	5		$	88
Net revenue from services		27		5			32

Total net revenue	$	110	$	10		$	120

Income (loss) from operations(1)	$	15	$	(13	)	$	2
Depreciation expense	$	2	$	1		$	3



	SOC/SIP/ High-Speed Memory		Memory			Total Segments
	(in millions)
Six months ended April 30, 2011:
Net revenue from products	$	149	$	11		$	160
Net revenue from services		64		8			72

Total net revenue	$	213	$	19		$	232

Income (loss) from operations(1)	$	17	$	(14	)	$	3
Depreciation expense	$	4	$	2		$	6
Six months ended April 30, 2010:
Net revenue from products	$	152	$	12		$	164
Net revenue from services		52		10			62

Total net revenue	$	204	$	22		$	226

Income (loss) from operations(1)	$	24	$	(24	)	$	—
Depreciation expense	$	4	$	2		$	6

(1)

The profitability of each of the segments is measured after excluding restructuring charges, impairment of investments and goodwill, transaction-related costs, transition-related charges, net foreign currency gain (loss), interest income, interest expense, and other items as noted in the reconciliation below.

The following table reconciles segment results to our total company results from operations before taxes:


	Three Months Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
	(in millions)
Total reportable segments’ income (loss) from operations	$	(1	)	$	2		$	3		$	—
Restructuring charges		(3	)		(1	)		(3	)		(2	)
Transaction-related costs		(23	)		—			(32	)		—
Transition-related charges		(1	)		(1	)		(1	)		(5	)
Interest and other income		1			1			4			2
Net foreign currency loss		—			—			(1	)		—
Interest expense		(2	)		(2	)		(4	)		(4	)
Impairment of investment		—			(1	)		—			(1	)
Excess and obsolescence inventory charges		(9	)		—			(9	)		—
Other		—			1			—			3

Loss from operations before taxes, as reported	$	(38	)	$	(1	)	$	(43	)	$	(7	)

The following table presents assets directly managed by each segment. Unallocated assets primarily consist of cash and cash equivalents, marketable securities, valuation allowance relating to deferred tax assets and other assets.


	SOC/SIP/ High-Speed Memory		Memory		Total Segments
	(in millions)
Assets:
As of April 30, 2011	$	202	$	25	$	227
As of October 31, 2010	$	207	$	31	$	238

Major customers

For the three months ended April 30, 2011, one of our customers accounted for 15.2% of our total net revenue. For the three months ended April 30, 2010, two of our customers accounted for 22.5% of our total net revenue, with one customer accounting for 12.0% and the other customer accounting for 10.5% of our total net revenue.

For the six months ended April 30, 2011, one of our customers accounted for 11.1% of our total net revenue. For the six months ended April 30, 2010, two of our customers accounted for 28.1% of our total net revenue, with one customer accounting for 16.0% and the other customer accounting for 12.1% of our total net revenue.

Geographic Net Revenue Information:


	Three Months Ended April 30,				Six Months Ended April 30,
	2011		2010		2011		2010
	(in millions)
United States	$	14	$	16	$	33	$	27
Singapore		7		18		15		43
Taiwan		53		49		91		97
Japan		9		12		18		17
Korea		14		10		27		17
Rest of the World		15		15		48		25

Total net revenue	$	112	$	120	$	232	$	226

Net revenue is attributed to geographic areas based on where the products are shipped.

Geographic Location of Property, Plant and Equipment Information:


	April 30, 2011		October 31, 2010
	(in millions)
United States	$	15	$	19
Singapore		10		11
Germany		8		7
Taiwan		6		6
Rest of the World		4		2

Total geographic location of property, plant and equipment	$	43	$	45

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements including, without limitation, statements regarding the transaction with Advantest, the additional expenses we may continue to incur in connection with the transaction and the effect on our operating results, the changes in the global economy and improvement in our market, research and development activities and expenses, variations in quarterly revenues and operating results, our liquidity position, our foreign currency risk, the potential impact of adopting new accounting pronouncements, the quality of our marketable securities, our purchase commitments, our obligation and assumptions about our retirement and post-retirement benefit plans, and our lease payment obligations that involve risks and uncertainties. Additional forward-looking statements can be identified by words such as “anticipated,” “expect,” “believes,” “plan,” “predicts,” and similar terms. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, such as the impact of actions of other parties with respect to the pending consummation of the transaction with Advantest; the ability to retain key employees; delays in or cancellations of orders by customers awaiting resolution of the transaction with Advantest; conditions of the semiconductor and semiconductor test industries; the strength of our customers’ businesses; unanticipated delays in meeting product demand and delivery requirements; and other economic, business, competitive, and/or regulatory factors affecting the businesses of Verigy generally, including those discussed under “Part II, Item 1A., Risk Factors” and elsewhere in this report.

Overview

We design, develop, manufacture and sell advanced test systems and solutions for the semiconductor industry. We offer a scalable platform for each of the general categories of devices being tested: our V93000 Series platform, designed to test System-on-a-Chip (“SOC”), System-in-a-Package (“SIP”) and high-speed memory devices; our V6000 Series platform, which is the successor to the V5000 platform, designed to test both flash memory and dynamic random access memory (“DRAM”) devices, and our V101 platform, designed to test highly cost-sensitive devices such as 4, 8 and 16-bit micro-controller units (“MCUs”) and consumer mixed-signal devices. We also design, manufacture and sell advanced MEMS (micro electro-mechanical system) based probe cards used in wafer-sort testing of memory devices.

Each of our test platforms is scalable across different frequency ranges, pin counts and numbers of devices under simultaneous test. The test platforms’ flexibility also allows for a single test system to test a wide range of semiconductor device applications. Our platform strategy allows us to optimize operational efficiencies such as research and development investments, engineering headcount, support requirements and inventory risk. This platform strategy also provides economic benefits to our customers by allowing them to bring their complex, feature-rich semiconductor devices to market quickly and to reduce their overall costs. In addition to our test platforms, our product portfolio includes advanced analysis as well as consulting and service and support offerings such as start-up assistance, application services and system calibration and repair.

We have a broad customer base which includes integrated device manufacturers (“IDMs”), fabless companies, and test subcontractors, also referred to as subcontractors or “OSAT” (outsourced sub-assembly and test) providers. OSATs include specialty assembly, package and test companies as well as wafer foundries, and fabless design companies that design, but contract with others to manufacture integrated circuits.

Basis of Presentation

The accompanying financial data has been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). For a full understanding of our financial position and results of operations, this discussion should be read in conjunction with the condensed consolidated financial statements and related notes presented in this report on Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been omitted pursuant to such rules and regulations.

Our fiscal year end is October 31, and our fiscal quarters end on January 31, April 30, July 31 and October 31. Unless otherwise stated, all dates refer to our fiscal years and fiscal periods. Amounts included in the accompanying condensed consolidated financial statements are expressed in U.S. dollars.

Transaction-Related Activities

On March 28, 2011 (Japan Time), Verigy entered into an Implementation Agreement with Advantest Corporation (“Advantest” ), dated as of March 28, 2011 (the “Implementation Agreement”), that provides for all issued and outstanding ordinary shares of Verigy to be transferred to Advantest in exchange for US$15.00 per share in cash (the “Transaction”). In connection with the Transaction, Verigy filed a definitive proxy statement with the U.S. Securities and Exchange Commission (“SEC”) on May 20, 2011 and expects to hold a special meeting of shareholders on June 17, 2011 to approve the Transaction.

Revenue Recognition for Certain Arrangements with Software Elements and/or Multiple Deliverables

In October 2009, the FASB also amended the accounting standards for multiple-deliverable revenue arrangements to:

•

provide updated guidance on how the deliverables in an arrangement should be separated, and how the consideration should be allocated;

•

eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and

•

VSOE – the price at which the Company sells the element in a separate stand-alone transaction.

•

TPE – evidence from the Company or other companies of the value of a largely interchangeable element in a transaction.

•

ESP – the Company’s best estimate of the selling price of an element in a transaction.

Revenue is recognized when all of the following criteria have been met:

•

Persuasive evidence of an arrangement exists. We generally rely upon customer purchase orders, sales contracts, or other agreements to determine existence of an arrangement.

•

Sales price is fixed or determinable. We consider the price to be fixed or determinable when the price is not subject to refund or adjustments.

•

Collectability is reasonably assured. At the time we take an order, we evaluate the creditworthiness of our customers to determine the appropriate timing of revenue recognition.

Product revenue. Our product revenue is generated predominantly from the sales of various types of test equipment. Software is embedded in many of our test equipment products, and function together to deliver the product’s essential functionality. For sales or arrangements that include customer-specified acceptance criteria, including those where acceptance is required upon achievement of performance milestones or fulfillment of other future obligations, revenue is recognized after the acceptance criteria have been met. For products that include installation, if we have previously successfully installed similar equipment, product revenue is recognized upon delivery and recognition of installation revenue is delayed until the installation is complete. Otherwise, neither the product nor the installation revenue is recognized until the installation is complete.

Overview of Results

Our total net revenue for the three months ended April 30, 2011, was $112 million, down $8 million, or 6.7%, from the comparable period in fiscal year 2010. The decrease was primarily due to lower revenue from sales of our SOC, memory and probe card products. Although we experienced continued weakness in the overall memory test business, we saw a significant increase in our high speed memory products. We also believe that the uncertainty regarding the LTX-Credence merger and the transaction with Advantest has caused certain customers to delay purchase decisions.

Our gross margin for the three months ended April 30, 2011 was 35.7%, a decrease of 11.8 percentage points from the comparable period in fiscal year 2010. Gross margin deterioration was primarily driven by the decrease in revenue in our memory and probe card businesses coupled with an $8.9 million increase in excess and obsolete inventory charges primarily due to the continued weakness in our memory and low-cost tester businesses. We also experienced an increase in salaries and wages due to annual performance adjustments. Our gross margin for the three months ended April 30, 2011 decreased by 11.0 percentage points from 46.7% in the first quarter of fiscal year 2011. This sequential deterioration was driven primarily from higher excess and obsolete charges as well as an increase in salaries and wages due to annual performance adjustments.

Our research and development and selling, general and administrative expenses totaled $52 million in the second quarter of fiscal year 2011, down $3 million, or 5.5%, from the comparable period in fiscal year 2010, and flat sequentially. The decrease in these expenses from the comparable quarter of fiscal year 2010 was due to lower variable and share-based compensation slightly offset by the impact of annual performance salary adjustments, as well as higher pension expenses primarily driven by the decrease in the discount rate assumptions compared to fiscal year 2010.

Net loss for the three and six months ended April 30, 2011 was $40 million and $45 million, respectively, compared to net loss of $1 million and $7 million in the comparable periods in fiscal year 2010. The year over year deterioration from fiscal year 2010 was mainly driven by the incremental $22.9 million of transaction related deal costs incurred in the period in connection with the LTX-Credence merger and the pending transaction with Advantest, of which, $15 million related to a break-up fee paid to LTX-Credence to terminate the Merger Agreement signed on November 17, 2010 while the remainder of the costs were for legal, accounting, consulting and other fees. For the six months ended April 30, 2011, we used $47 million in cash for operating activities. Our cash and cash equivalents balance as of April 30, 2011 was $244 million.

The sales of our products and services are dependent, to a large degree, on customers who are subject to cyclical trends in the demand for their products. These cyclical periods have had, and will continue to have, a significant effect on our business since our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor industry. Historically, these demand fluctuations have resulted in significant variations in our results of operations. The sharp swings in the semiconductor industry in recent years have generally affected the semiconductor test equipment and services industry more significantly than the overall capital equipment sector.

While we sell to a variety of customers, subcontractors represent a large portion of our customer base. During market troughs, these subcontractors tend to decrease or postpone orders for new test systems and test services more quickly and dramatically since they are more capacity-driven than other customers. As a result, industry downturns may cause a quicker and more significant adverse effect on our business than on the broader semiconductor industry. In addition, although a decline in orders for semiconductor capital equipment may accompany or precede the timing of a decline in the semiconductor market as a whole, recovery in semiconductor capital equipment spending may lag the recovery by the semiconductor industry.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s knowledge of current events and of actions that may impact the company in the future, actual results may be different from the estimates. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies are revenue recognition, restructuring, inventory valuation, warranty, share-based compensation, retirement and post-retirement plan assumptions, valuation of goodwill and long-lived assets, valuation of marketable securities and accounting for income taxes.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. There have been no significant changes to our critical accounting policies and estimates from our Annual Report on Form 10-K for the year ended October 31, 2010, filed with the Securities and Exchange Commission on December 13, 2010.

Recent Accounting Pronouncements

Quarterly Results of Operations

Our quarterly results of operations have varied in the past and are likely to continue to vary in the future primarily due to the cyclical nature of the semiconductor industry. Historically, the semiconductor industry has been highly cyclical, with recurring periods of diminished product demand. During these periods, semiconductor designers and manufacturers, facing reduced demand for their products, have significantly reduced their capital and other expenditures, including expenditures for the semiconductor test equipment and services that we offer. Historically, our third and fourth fiscal quarters have tended to be our strongest quarters for new orders, while our first fiscal quarter has tended to be our weakest. We believe that the most significant factor driving these seasonal patterns is the holiday buying season for consumer electronics products. The seasonality of our business is often masked to a significant extent by the high degree of cyclicality of the semiconductor industry. Due to our limited operating history, seasonality in orders, and the unpredictable cyclicality of our industry, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of future performance. We also believe that the uncertainty regarding the terminated merger agreement with LTX-Credence merger and the proposed Advantest Transaction has caused certain customers to delay purchase decisions. In future periods, the market price of our ordinary shares could decline if our revenue and results of operations are below the expectations of analysts and investors. Factors that may cause our revenue and results of operations to vary include those discussed in the “Risk Factors” in Item 1A of Part II of, and elsewhere in, this report.

The following table sets forth certain operating data as a percent of net revenue for the periods presented:


	Three Months Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
Net revenue:
Products		68.8	%		73.3	%		69.0	%		72.6	%
Services		31.2			26.7			31.0			27.4

Total net revenue		100.0			100.0			100.0			100.0
Cost of sales:
Cost of products		44.7			35.0			39.6			36.3
Cost of services		19.6			17.5			19.0			17.7

Total cost of sales		64.3			52.5			58.6			54.0

Gross margin (1)		35.7			47.5			41.4			46.0
Operating expenses:
Research and development		20.5			19.2			19.8			19.9
Selling, general and administrative		25.9			26.7			25.0			27.0
Transaction-related costs		20.5			—			13.8			—
Restructuring charges		1.8			0.8			0.9			0.9

Total operating expenses		68.7			46.7			59.5			47.8
Loss (income) from operations		(33.0	)		0.8			(18.1	)		(1.8	)
Other (expense) income, net		(0.9	)		(0.8	)		(0.4	)		(0.9	)
Impairment of investments		—			(0.8	)		—			(0.4	)

Loss before income taxes		(33.9	)		(0.8	)		(18.5	)		(3.1	)
Provision for income taxes		1.8			—			0.9			—

Net loss		(35.7	)%		(0.8	)%		(19.4	)%		(3.1	)%

(1)	Gross margin represents the ratio of gross profit to total net revenue.

Net Revenue


	Three Months Ended April 30,						2011 over 2010 Change			Six Months Ended April 30,						2011 over 2010 Change
	2011			2010			2011 over 2010 Change			2011			2010			2011 over 2010 Change
	($ in millions)									($ in millions)
Net revenue from products:
SOC/SIP/High-Speed Memory	$	75		$	83			(9.6	)%	$	149		$	152			(2.0	)%
As a percent of total net revenue		67.0	%		69.1	%					64.2	%		67.3	%
Memory	$	2		$	5			(60.0	)%	$	11		$	12			(8.3	)%
As a percent of total net revenue		1.8	%		4.2	%					4.8	%		5.3	%

Net revenue from products	$	77		$	88			(12.5	)%	$	160		$	164			(2.4	)%

Net revenue from services	$	35		$	32			9.4	%	$	72		$	62			16.1	%
As a percent of total net revenue		31.2	%		26.7	%					31.0	%		27.4	%

Total net revenue	$	112		$	120			(6.7	)%	$	232		$	226			2.7	%

We report revenue by geography based on where the products are shipped. Our net revenues by geographic region for the three and six months ended April 30, 2011 and 2010 are as follows:


	Three Months Ended April 30,						2011 over 2010 Change			Six Months Ended April 30,						2011 over 2010 Change
	2011			2010			2011 over 2010 Change			2011			2010			2011 over 2010 Change
	($ in millions)									($ in millions)
North America	$	14		$	16			(12.5	)%	$	33		$	27			22.2	%
As a percent of total net revenue		12.5	%		13.3	%					14.2	%		12.0	%
Europe	$	9		$	7			28.6	%	$	17		$	13			30.8	%
As a percent of total net revenue		8.0	%		5.8	%					7.3	%		5.7	%
Asia	$	89		$	97			(8.2	)%	$	182		$	186			(2.2	)%
As a percent of total net revenue		79.5	%		80.9	%					78.5	%		82.3	%

Total net revenue	$	112		$	120			(6.7	)%	$	232		$	226			2.7	%

Net Revenue. Net revenue is derived from the sale of products and services and is adjusted for estimated returns and allowances, which historically have been insignificant. Our product revenue is generated predominantly from the sales of our test equipment products. Revenue from services includes extended warranty, customer support, consulting, training and education activities. Service revenue is recognized over the contractual period or as services are rendered to the customer.

Net revenue in the three months ended April 30, 2011 was $112 million, a decrease of $8 million, or 6.7%, from $120 million achieved in the three months ended April 30, 2010. Net product revenue in the three months ended April 30, 2011 was $77 million, a decrease of $11 million, or 12.5%, from $88 million achieved in the three months ended April 30, 2010. The decrease was primarily due to lower revenue from sales of our SOC, memory and probe card products. Although we experienced continued weakness in our memory and low cost tester businesses, we saw a significant increase in our high speed memory and MPU products.

We derive a significant percentage of our net revenue from outside of North America. Net revenue from customers located outside of North America represented 87.5% and 86.7% of total net revenue in the three months ended April 30, 2011 and 2010, respectively. Net revenue in North America as a percentage of total net revenue was lower by 0.8 percentage points in the three months ended April 30, 2011, compared to the three months ended April 30, 2010. Net revenue in Asia as a percentage of total net revenue, was lower by 1.4 percentage points in the three months ended April 30, 2011, compared to the three months ended April 30, 2010. We expect a majority of our sales to continue to be generated in the Asia region as semiconductor manufacturing activities continue to concentrate in that region.

Service revenue for the three months ended April 30, 2011 accounted for $35 million, or 31.2% of net revenue, compared to $32 million, or 26.7% of net revenue in the three months ended April 30, 2010. Unlike product revenue, service revenue tends not to experience significant cyclical fluctuations due to the fact that service contracts generally extend for one to two years and revenue is recognized over the contractual period or as services are rendered. We expect to see a gradual increase in service revenue over time as product sales begin to increase.

Net revenue in the six months ended April 30, 2011, was $232 million, an increase of $6 million, or 2.7%, from the $226 million achieved in the comparable prior period. Net product revenue in the six months ended April 30, 2011 was $160 million, a decrease of $4 million, or 2.4 %, from the $164 million achieved in the comparable prior period. The decrease in net product revenue was primarily due to lower product sales from our memory and low cost tester businesses offset by an increase in our probe card and high speed memory products.

Service revenue for the six months ended April 30, 2011 accounted for $72 million, or 31.0% of net revenue, compared to $62 million, or 27.4% of net revenue for the six months ended April 30, 2010. Product revenue for our SOC products increased by almost 50% over the last twelve months ended April 30, 2011 compared to the last twelve months ended April 30, 2010. This volume increase over the past year favorably impacted our service and support business as service contracts typically span over a one to two year period.

Cost of Sales

Cost of Products


	Three Months Ended April 30,						2011 over 2010 Change			Six Months Ended April 30,						2011 over 2010 Change
	2011			2010			2011 over 2010 Change			2011			2010			2011 over 2010 Change
	($ in millions)									($ in millions)
Cost of products	$	50		$	42			19.0	%	$	92		$	82			12.2	%
As a percent of product revenue		64.9	%		47.7	%					57.5	%		50.0	%

Cost of Products. Cost of products consists primarily of manufacturing materials, outsourced manufacturing costs, direct labor, manufacturing and administrative overhead, warranty costs and provisions for excess and obsolete inventory, partially offset, when applicable, by benefits from sales of previously written down inventory.

The increase in cost of products of approximately $8 million in the three months ended April 30, 2011, compared to the three months ended April 30, 2010, was primarily due to $8.9 million of higher excess and obsolete inventory charges primarily driven by the continued weakness in our memory and low cost tester businesses as well as increases in salaries and wages due to annual performance adjustments that became effective the beginning of the second quarter of fiscal year 2011. Cost of products included $1.3 million of restructuring expense in the three months ended April 30, 2011, compared to $0.5 million of such charge in the three months ended April 30, 2010. Cost of products also included $0.2 million of share-based compensation expense in the three months ended April 30, 2011, compared to $0.6 million of such charge in the three months ended April 30, 2010.

Cost of products as a percent of net product revenue increased by 17.2 percentage points in the three months ended April 30, 2011, compared to the three months ended April 30, 2010, primarily driven by higher excess and obsolete inventory charges, an increase in salaries and wages due to annual performance adjustments that became effective during the second quarter of 2011 as well as the lower gross margin generated by our memory, low cost tester and probe card businesses due to the lower volume of revenue.

Gross excess and obsolete inventory-related charges in the three months ended April 30, 2011 and 2010 were $10.2 million and $1.3 million, respectively. We also sold previously written down inventory of $1.4 million and $1.5 million in the three months ended April 30, 2011 and 2010, respectively. The sales of previously written down inventory improved our gross margins on product sales by approximately 1.2 percentage points in the three months ended April 30, 2011 and 0.8 percentage points in the three months ended April 30, 2010.

The increase in cost of products of approximately $10 million in the six months ended April 30, 2011, compared to the six months ended April 30, 2010, was primarily due to $8.3 million of higher excess and obsolete inventory charges primarily due to the continued weakness in our memory and low cost tester businesses and an increase in salaries and wages due to annual performance adjustments that became effective the beginning of the second quarter of fiscal year 2011. Cost of products included $1.3 million of restructuring expense in the six months ended April 30, 2011, compared to $0.8 million of such charge in the six months ended April 30, 2010. Cost of products also included $0.5 million of share-based compensation expense in both the six months ended April 30, 2011 and 2010.

Cost of products as a percent of net product revenue increased by 7.5 percentage points in the six months ended April 30, 2011, compared to the six months ended April 30, 2010, primarily driven by higher excess and obsolete inventory charges and lower gross margin generated by our memory and low cost tester businesses due to the lower volume of revenue slightly offset by the temporary cost saving measures put in place during the six months ended April 30, 2011.

Gross excess and obsolete inventory-related provisions in the six months ended April 30, 2011 and 2010 were $11.4 million and $3.1 million, respectively. We sold previously written down inventory for $2.9 million and $5.6 million in the six months ended April 30, 2011 and 2010, respectively. The sales of previously written down inventory increased gross margin by approximately 1.1 percentage points for the six months ended April 30, 2011 compared to 1.8 percentage points for the six months ended April 30, 2010.

As of April 30, 2011, we held $93 million of inventory, net of $45 million of reserves, composed of $51 million of raw materials, and $42 million of finished goods. Raw materials include approximately $13 million of support inventory. We continue to dispose of previously written down inventory on a recurring basis.

Cost of Services


	Three Months Ended April 30,						2011 over 2010 Change			Six Months Ended April 30,						2011 over 2010 Change
	2011			2010			2011 over 2010 Change			2011			2010			2011 over 2010 Change
	($ in millions)									($ in millions)
Cost of services	$	22		$	21			4.8	%	$	44		$	40			10	%
As a percent of service revenue		62.9	%		65.6	%					61.1	%		64.5	%

Cost of Services. Cost of services includes cost of applications engineering personnel, spare parts consumed in service activities and administrative overhead allocations.

Cost of services for the three months ended April 30, 2011 was $1 million higher compared to the three months ended April 30, 2010. Cost of services as a percent of service revenue decrease by 2.7 percentage points, from 65.6% in the three months ended April 30, 2010 to 62.9% in the three months ended April 30, 2011. This gross margin increase was primarily driven by higher revenue volume, favorable product mix during the three months ended April 30, 2011. Our cost of services included $0.5 million and $0.2 million of share-based compensation expense for the three months ended April 30, 2011 and 2010, respectively.

Cost of services for the six months ended April 30, 2011 was $4 million higher compared to the six months ended April 30, 2010. Cost of services as a percent of service revenue decreased by 3.4 percentage points, from 64.5% in the six months ended April 30, 2010 to 61.1% in the six months ended April 30, 2011. This gross margin increase was primarily driven by higher revenue volume, favorable product mix and temporary cost saving measures put in place during the six months ended April 30, 2011. Our cost of services also included $1.0 million and $0.5 million of share-based compensation expense in the six months ended April 30, 2011 and 2010, respectively.

As a percent of service revenue, cost of services will vary depending on a variety of factors, including the effect of price erosion, the reliability and quality of our products and our need to maintain customer service and support centers worldwide.

Operating Expenses

Research and Development Expenses


	Three Months Ended April 30,						2011 over 2010 Change		Six Months Ended April 30,						2011 over 2010 Change
	2011			2010			2011 over 2010 Change		2011			2010			2011 over 2010 Change
	($ in millions)						($ in millions)
Research and development	$	23		$	23			—	$	46		$	45			2.2	%
As a percent of total net revenue		20.5	%		19.2	%				19.8	%		19.9	%

Research and Development. Research and development expense includes costs related to salaries and related compensation expenses for research and development and engineering personnel, materials used in research and development activities, outside contractor expenses, depreciation of equipment used in research and development activities, facilities and other overhead and support costs for the personnel, as well as in-process research and development related to our acquisitions. Research and development costs have generally been expensed as incurred.

Research and development expense was flat during the three months ended April 30, 2011, compared to the three months ended April 30, 2010. Research and development expense as a percentage of revenue increased by 1.3 percentage points from 19.2% in the three months ended April 30, 2010 to 20.5% in the three months ended April 30, 2011. This increase was primarily due to the lower revenue levels in the three months ended April 30, 2011, compared to the three months ended April 30, 2010. Although, research and development expense was flat in absolute dollars during the three months ended April 30, 2011 compared to the same time last year, we experienced an increase in salaries and wages due to the impact of annual performance adjustments, however, this was completely offset by the decrease in discretionary spending and savings from restructuring actions put into place during fiscal year 2011. Research and development expense also included $0.5 million and $0.6 million of share-based compensation expense for the three months ended April 30, 2011 and 2010, respectively.

Research and development expense in the six months ended April 30, 2011 was $1 million higher compared to the same time last year. Research and development as a percentage of revenue decreased by 0.1 percentage point from 19.9% in the six months ended April 30, 2010 to 19.8% in the six months ended April 30, 2011. This decrease was primarily due to the higher revenue levels in the six months ended April 30, 2011, compared to the six months ended April 30, 2010. Although, research and development expense was about flat in absolute dollars for the six months ended April 30, 2011 compared to the same time last year, we experienced an increase in salaries and wages due to the impact of annual performance adjustments, however, this was completely offset by the decrease in discretionary spending and savings from restructuring actions put into place during fiscal year 2011. Research and development expense also included $1.0 million of share-based compensation expense for both the six months ended April 30, 2011 and 2010, respectively.

We believe that we need to maintain a significant level of research and development spending in order to remain competitive and, as a result, we expect our research and development expenses to only vary modestly in dollar amount from period to period, and to fluctuate as a percentage of revenue based on revenue levels.

Selling, General and Administrative Expenses


	Three Months Ended April 30,						2011 over 2010 Change			Six Months Ended April 30,						2011 over 2010 Change
	2011			2010			2011 over 2010 Change			2011			2010			2011 over 2010 Change
	($ in millions)
Selling, general and administrative	$	29		$	32			(9.4	)%	$	58		$	61			(4.9	)%
As a percent of total net revenue		25.9	%		26.7	%					25.0	%		27.0	%

Selling, General and Administrative. Selling, general and administrative expense includes costs related to salaries and related expenses for sales, marketing and applications engineering personnel, sales commissions paid to sales representatives and distributors, outside contractor expenses, other sales and marketing program expenses, travel and professional service expenses, salaries and related expenses for administrative, finance, human resources, legal and executive personnel, facility and other overhead and support costs for these personnel.

Selling, general and administrative expense decreased by $3 million in absolute dollars in the three months ended April 30, 2011, compared to the three months ended April 30, 2010. The decrease was due to lower share-based and variable compensation costs offset slightly by higher salaries and wages due to annual performance adjustments that became effective beginning the second quarter of fiscal year 2011. Selling, general and administrative expense included approximately $2.5 million of share-based compensation expenses in the three months ended April 30, 2011, compared to $3.6 million of such expenses in the three months ended April 30, 2010.

Selling, general and administrative expense decreased 4.9% to $58 million for the six months ended April 30, 2011, compared to the six months ended April 30, 2010. The decrease was due to lower share-based and variable compensation costs slightly offset by an increase in salaries and wages due to annual performance adjustments that became effective during the second quarter of fiscal year 2011. Selling, general and administrative expenses included approximately $5.3 million of share-based compensation expenses in the six months ended April 30, 2011, compared to $7.0 million of such charges in the six months ended April 30, 2010.

Transaction-Related Costs

Transaction-Related Costs. Transaction-related costs include costs incurred directly related to the merger and acquisition activities with LTXC and Advantest. These costs consists primarily of the $15 million break-up fee incurred to terminate the Merger Agreement signed with LTXC on November 17, 2010, third party costs for legal, accounting and consulting fees, as well as expenses related to a separation agreement with a key employee. Transaction-related costs included approximately $3.2 million of share-based compensation for the six months ended April 30, 2011. Also see, “Transaction-Related Activities.”

The following table presents the components of the transaction-related costs incurred for the three and six months ended April 30, 2011 and 2010:


	Three Months Ended April 30,				Six Months Ended April 30,
	2011		2010		2011		2010
	(in millions)
Break-up fee paid to LTX-Credence	$	15	$	—	$	15	$	—
Legal costs		7		—		9		—
Bankers fee		—		—		1		—
Accounting and other consulting costs		1		—		2		—
Separation costs with a key employee		—		—		5		—

Transaction-related costs	$	23	$	—	$	32	$	—

Restructuring Charges

Other (expense) income, net

The following table presents the components of other (expense) income, net for the three and six months ended April 30, 2011 and 2010:


	Three Months Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
	(in millions)
Interest and other income	$	1		$	1		$	4		$	2
Interest expense		(2	)		(2	)		(4	)		(4	)
Net foreign currency loss		—			—			(1	)		—

Other (expense) income, net	$	(1	)	$	(1	)	$	(1	)	$	(2	)

Provision for Income Taxes

Goodwill and Long-Lived Assets

Segment Overview

We design, develop, manufacture and sell advanced test systems and solutions for the semiconductor industry. We have two operating segments, SOC test systems and memory test systems, which we report as two reportable segments. All historical segment numbers for the three and six months ended April 30, 2010 were presented to conform to the three and six months ended April 30, 2011.

SOC / SIP / High-Speed Memory

Our SOC/SIP/High-speed memory test business provides solutions designed to test very complex, highly integrated semiconductors such as SOCs and SIPs, as well as testers for testing less complex semiconductors such as MCUs. SOCs and SIPs are semiconductors that integrate the functionality of multiple individual ICs onto a single IC or package, and often contain both digital and analog functionalities, including RF capabilities, communication interfaces and embedded memory.

Net Revenue


	Three Months Ended April 30,				2011 over 2010 Change			Six Months Ended April 30,				2011 over 2010 Change
	2011		2010		2011 over 2010 Change			2011		2010		2011 over 2010 Change
	($ in millions)							($ in millions)
Net revenue from products	$	75	$	83		(9.6	)%	$	149	$	152		(2.0	)%
Net revenue from services		31		27		14.8	%		64		52		23.1	%

Total net revenue	$	106	$	110		(3.6	)%	$	213	$	204		4.4	%

Net revenue for the three months ended April 30, 2011 was $106 million, a decrease of $4 million, or 3.6%, from $110 million for the three months ended April 30, 2010. Net product revenue for the three months ended April 30, 2011 was $75 million, a decrease of $8 million, or 9.6%, from $83 million for the three months ended April 30, 2010. The decrease was primarily due to lower revenue from sales of our consumer mixed signal, advanced structural test and low cost tester segments, however, we saw a significant increase in our high speed memory products.

Service revenue for the three months ended April 30, 2011 accounted for $31 million, an increase of $4 million, or 14.8%, from $27 million for the three months ended April 30, 2010. Unlike product revenue, service revenue tends not to experience significant cyclical fluctuations due to the fact that service contracts generally extend for one to two years and revenue is recognized over the contractual period or as services are rendered. During the fiscal year 2010, revenue for our SOC products increased by over 100% compared to fiscal year 2009 reflecting the overall recovery in the semiconductor test market. This volume increase over the past year favorably impacted our service and support business as service contracts typically span over a one to two year period.

Net revenue for the six months ended April 30, 2011 was $213 million, an increase of $9 million, or 4.4%, from $204 million for the six months ended April 30, 2010. Net product revenue for the six months ended April 30, 2011 was $149 million, a decrease of $3 million, or 2.0%, from $152 million for the six months ended April 30, 2010. The decrease was primarily due to lower revenue from sales of our consumer mixed signal, advanced structural test, and low cost tester segments, however, we saw a significant increase in high speed memory.

Service revenue for the six months ended April 30, 2011 accounted for $64 million, an increase of $12 million, or 23.1%, from $52 million for the six months ended April 30, 2010. Unlike product revenue, service revenue tends not to experience significant cyclical fluctuations due to the fact that service contracts generally extend for one to two years and revenue is recognized over the contractual period or as services are rendered. During the fiscal year 2010, revenue for our SOC products increased by over 100% compared to fiscal year 2009 reflecting the overall recovery in the semiconductor test market. This volume increase over the past year favorably impacted our service and support business as service contracts typically span over a one to two year period.

Income from Operations

The following table shows the income from operations for the three and six months ended April 30, 2011 and 2010.


	Three Months Ended April 30,				2011 over 2010 Change			Six Months Ended April 30,				2011 over 2010 Change
	2011		2010		2011 over 2010 Change			2011		2010		2011 over 2010 Change
	($ in millions)							($ in millions)
Income from operations	$	8	$	15		(46.7	)%	$	17	$	24		(29.2	)%

Income from operations for the three months ended April 30, 2011 was $8 million, a decrease of $7 million, or 46.7%, from $15 million for the three months ended April 30, 2010 on a revenue decrease of $4 million. We experienced an increase in compensation and benefit costs as a result of annual performance salary adjustments and increased pension costs. We also saw an increase in research and development due to our continued investment in our products and lower gross margins due to product mix.

Income from operations for the six months ended April 30, 2011 was $17 million, a decrease of $7 million, or 29.2%, from $24 million for the six months ended April 30, 2010 on a revenue increase of $9 million. We experienced an increase in compensation and benefit costs as a result of the restoration of full pay to employees that became effective in the second quarter of fiscal year 2010, annual performance salary adjustments, as well as increased pension costs. Our results were also negatively impacted by an increase in research and development due to our continued investment in our products. In addition, although we generated an increase in revenue, our gross margins were lower due to product mix.

Memory

Net Revenue


	Three Months Ended April 30,				2011 over 2010 Change			Six Months Ended April 30,				2011 over 2010 Change
	2011		2010		2011 over 2010 Change			2011		2010		2011 over 2010 Change
	($ in millions)							($ in millions)
Net revenue from products	$	2	$	5		(60.0	)%	$	11	$	12		(8.3	)%
Net revenue from services		4		5		(20.0	)%		8		10		(20.0	)%

Total net revenue	$	6	$	10		(40.0	)%	$	19	$	22		(13.6	)%

Net revenue for the three months ended April 30, 2011 was $6 million, a decrease of $4 million, or 40.0%, from $10 million for the three months ended April 30, 2010. Net product revenue for the three months ended April 30, 2011 was $2 million, a decrease of $3 million, or 60.0%, from $5 million for the three months ended April 30, 2010. The decrease was primarily due to the continued weakness in our memory business; however this was offset by growth in our probe card business.

Service revenue for the three months ended April 30, 2011 accounted for $4 million, a decrease of $1 million, or 20.0%, from $5 million for the three months ended April 30, 2010. Unlike product revenue, service revenue tends not to experience significant cyclical fluctuations due to the fact that service contracts generally extend for one to two years and revenue is recognized over the contractual period or as services are rendered. The continued weakness in our memory test business is reflected in the slight decrease in service revenues.

Net revenue for the six months ended April 30, 2011 was $19 million, a decrease of $3 million, or 13.6%, from $22 million for the six months ended April 30, 2010. Net product revenue for the six months ended April 30, 2011 was $11 million, a decrease of $1 million, or 8.3%, from $12 million for the six months ended April 30, 2010. The decrease was primarily due to the continued weakness in our memory business; however this was offset by growth in our probe card business.

Service revenue for the six months ended April 30, 2011 accounted for $8 million, a decrease of $2 million, or 20.0%, from $10 million for the six months ended April 30, 2010. Unlike product revenue, service revenue tends not to experience significant cyclical fluctuations due to the fact that service contracts generally extend for one to two years and revenue is recognized over the contractual period or as services are rendered. The continued weakness in our memory test business is reflected in the slight decrease in service revenues.

Loss from Operations

The following table shows the loss from operations for the three and six months ended April 30, 2011 and 2010.


	Three Months Ended April 30,						2011 over 2010 Change			Six Months Ended April 30,						2011 over 2010 Change
	2011			2010			2011 over 2010 Change			2011			2010			2011 over 2010 Change
	($ in millions)									($ in millions)
Loss from operations	$	(9	)	$	(13	)		30.8	%	$	(14	)	$	(24	)		41.7	%

Loss from operations decreased by $4 million for the three months ended April 30, 2011 compared to the three months ended April 30, 2010 on a revenue decrease of $4 million. We benefited from savings from our restructuring actions. Over the past year, memory has become a much smaller portion of our business resulting in a lower allocation of corporate charges, which also contributed to the decrease in loss from operations.

Loss from operations decreased by $10 million for the six months ended April 30, 2011 compared to the six months ended April 30, 2010 on a revenue decrease of $3 million. We benefited from savings from temporary cost saving measures put into place during the six months ended April, 2011 as well as from our restructuring actions. Over the past year, memory has become a much smaller portion of our business resulting in a lower allocation of corporate charges, which also contributed to the decrease in loss from operations.

Financial Condition

Liquidity and Capital Resources

As of April 30, 2011, we had $244 million in cash and cash equivalents, compared to $296 million as of October 31, 2010. This decrease in cash was primarily due to a $15 million breakup fee incurred to terminate the merger agreement with LTX-Credence, reductions in liabilities for employee compensation and benefits that reflected variable compensation payments earned during fiscal year 2010, a contribution to our German pension plans, a semi-annual interest payment for our senior convertible note, as well as the $45 million of net loss for the six months ended April 30, 2011.

Net Cash Used in Operating Activities

In the six months ended April 30, 2011, we used $47 million in cash for operating activities, compared to $7 million used in the six months ended April 30, 2010. The $47 million cash used during the six months ended April 30, 2011, was primarily a result of $45 million of net loss, a $15 million breakup fee incurred to terminate the merger agreement with LTX-Credence, a $16 million increase in inventory and decreases of $12 million in employee compensation and benefits liabilities related to variable compensation payments made to employees earned during fiscal year 2010, $7 million in deferred revenue, $4 million in accounts payable and $3 million in income taxes and other taxes payable. This also reflects an $8 million net change in other current and long-term assets and liabilities which included an interest payment of $4 million for our senior convertible note and a $5 million contribution to our German pension plans. These impacts were partially offset by a $17 million decrease in accounts receivable as a result of customer payments. Also during the six months ended April 30, 2011, we had non-cash charges of $11 million from depreciation and amortization expense, $11 million of net share-based compensation costs, $11 million from gross excess and obsolete inventory provisions, and a $2 million realized gain on marketable securities.

In the six months ended April 30, 2010, we used $7 million in cash for operating activities. The $7 million cash used during the six months ended April 30, 2010, was primarily a result of $7 million of net loss, a $20 million increase in payables, and an $8 million increase in deferred revenue. Also during the six months ended April 30, 2010, we had non-cash charges of $10 million from depreciation and amortization expense, $3 million from gross excess and obsolete inventory provisions, $10 million of net share-based compensation costs, and a $1 million impairment of an investment. These impacts were partially offset by increases of $26 million in receivables and $17 million in inventory, a reduction of $4 million in income tax and other taxes payable, and a change of net assets of $5 million in other current and long-term assets and liabilities.

Net Cash (Used in) Provided by Investing Activities

Net cash used in investing activities in the six months ended April 30, 2011 was $8 million, compared to $9 million provided in the six months ended April 30, 2010. The net cash used was primarily driven by purchases of available for sale marketable securities of $121 million and investments made for property, plant and equipment of $6 million. This was partially offset by the proceeds from the maturities and sales of available for sale marketable securities of $118 million and the proceeds from disposition of assets of $1 million. Our marketable securities include commercial paper, corporate bonds, government securities, money market funds and auction rate securities. Auction rate securities are securities that are structured with interest rate reset periods of generally less than ninety days but with contractual maturities that can be well in excess of 10 years. At the end of each interest rate reset period, investors can buy, sell or continue to hold the securities at par. As of April 30, 2011, all of our auction rate securities have experienced failed auctions. The funds associated with these auctions will not be accessible to us until a successful auction occurs, a buyer is found outside of the auction process, or the underlying securities have matured or are called by the issuer. Given the ongoing disruptions in the credit markets and the fact that the liquidity for these types of securities remains uncertain, we have classified all of our auction rate securities as long-term assets in our condensed consolidated balance sheet as of April 30, 2011, as our ability to liquidate such securities in the next 12 months is uncertain.

Net cash provided by investing activities in the six months ended April 30, 2010 was $9 million. The net cash provided was generated by the proceeds from the maturities and sale of available for sale marketable securities of $154 million and the proceeds from disposition of assets of $1 million. This was partially offset by purchases of available for sale marketable securities of $139 million and investments made for property, plant and equipment of $7 million, recorded within other (expense) income, net in the condensed consolidated statement of operations.

Net Cash Provided by Financing Activities

Net cash provided by financing activities in the six months ended April 30, 2011 was $2 million, compared to $1 million provided in the six months ended April 30, 2010. The $2 million net cash provided by financing activities in the six months ended April 30, 2011 was attributable to the issuance of shares under the employee stock plans and contributions by participants to our employee shares purchase plan, pursuant to which 398,587 shares were issued in first quarter of fiscal year 2011.

Net cash provided by financing activities was $1 million for the six months ended April 30, 2010. The $1 million net cash provided by financing activities in the six months ended April 30, 2010 was comprised of approximately $1 million from the issuance of shares under the employee stock plans including contributions by participants to our employee shares purchase plan, pursuant to which 285,899 shares were issued in the first quarter of fiscal year 2010.

Other

Our liquidity is affected by many factors, some of which are based on normal ongoing operations of our business and some of which arise from fluctuations related to global economics and markets. Our cash balances are generated and held in many locations throughout the world. Local government regulations may restrict our ability to move cash balances to meet cash needs under certain circumstances. We do not currently expect such regulations and restrictions to affect our ability to pay vendors and conduct operations throughout our global organization.

We believe that existing cash, cash equivalents and short-term marketable securities of $397 million as of April 30, 2011 will be sufficient to satisfy our working capital, capital expenditure and other liquidity needs at least for the next twelve months. However, we may require or choose to obtain debt or equity financing in the future. It is uncertain that additional financing, if needed, will be available on favorable terms, or at all.

Contractual Obligations and Commitments

Contractual Obligations

Our cash flows from operations are dependent on a number of factors, including fluctuations in our operating results, accounts receivable collections, inventory management and the timing of tax and other payments. As a result, the impact of contractual obligations on our liquidity and capital resources in future periods should be analyzed in conjunction with such factors.

The following table summarizes our contractual obligations at April 30, 2011 (in millions):


(in millions)	Total		Less than one year		One to three years		Three to five years		More than five years
Operating leases	$	45	$	10	$	17	$	16	$	2
Commitments to contract manufacturers and suppliers		115		115		—		—		—
Other purchase commitments		44		44		—		—		—
Convertible senior note and related interest		163		7		15		141		—
Long-term liabilities		54		—		3		—		51

Total	$	421	$	176	$	35	$	157	$	53

The contractual obligations table excludes our long-term income taxes payable liabilities and earn out payments related to our acquisition in Touchdown because we cannot make a reliable estimate of the timing of cash payments. As of April 30, 2011, we had total unrecognized tax benefits of $19.8 million, of which $19.3 million is reflected in other long-term liabilities, with the remaining $0.5 million netted against the related deferred tax assets.

Operating leases. Commitments under operating leases relate primarily to leasehold property. We have entered into long-term lease arrangements for our corporate headquarters in Singapore, our principal U.S. facility in Cupertino, California, and our Boeblingen, Germany facility. We have also entered into long-term lease arrangements for our ASIC development office in Colorado, as well as other sales and support facilities around the world.

Commitments to contract manufacturers and suppliers. We purchase components from a variety of suppliers and, historically, we have used several contract manufacturers to provide manufacturing services for our products. During the normal course of business, we issue purchase orders with estimates of our requirements several months ahead of the delivery dates. However, our agreements with these suppliers usually allow us the option to cancel, reschedule or adjust our requirements based on our business needs prior to firm orders being placed. Typically purchase orders outstanding with delivery dates within 30 days are non-cancelable. Approximately 44% of our purchase commitments arising from these agreements are firm, non-cancelable and unconditional commitments. We expect to fulfill the purchase commitments for inventory within one year.

In addition, we record a liability for firm, non-cancelable and unconditional purchase commitments for quantities in excess of our future demand forecasts. Such liabilities were $11 million as of April 30, 2011, and $6 million as of October 31, 2010. These amounts are included in other current liabilities in our condensed consolidated balance sheets at April 30, 2011 and October 31, 2010.

Other purchase commitments. Other purchase commitments relate primarily to contracts with professional services suppliers, which include third-party consultants for legal, finance, engineering and other administrative services. With the exception of our IT service providers, our purchase commitments from professional service providers are typically cancelable with a notice of 90 days or less without significant penalties. The agreement with our primary IT service provider requires notice of 120 days and includes a termination charge of up to approximately $0.3 million in order to cancel our long-term contract.

Convertible senior notes. On July 15, 2009, we issued $138 million of convertible senior notes. The notes will mature on July 15, 2014, and bear interest at a fixed rate of 5.25% per annum. The interest is payable semi-annually on January 15^th and July 15^th of each year and payments commenced on January 15, 2010.

Long-term liabilities. Long-term liabilities relate primarily to $40 million of defined benefit and defined contribution retirement obligations, $3 million of extended warranty and deferred revenue obligations and $11 million of long-term deferred compensation accrual. Upon our separation from Agilent, the defined benefit plans for our employees located in Germany, Korea, Taiwan, France and Italy were transferred to us. With the exception of Italy and France, which involve relatively insignificant amounts, Agilent completed the funding of these transferred plans, based on 100% of the accumulated benefit obligation level as of the separation date. The contractual obligation table excludes the $6 million deferred acquisition credit related to our acquisition in Touchdown because we cannot make a reliable estimate of the timing of cash payments. We expect expenses of approximately $6 million in fiscal year 2011 for the retirement plans. We made approximately $5 million of contributions to the retirement plans for the six months ended April 30, 2011.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of April 30, 2011 or October 31, 2010.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Foreign Currency Risk

We conduct business on a global basis in a number of major international currencies. As such, we are potentially exposed to adverse as well as beneficial movements in foreign currency exchange rates. The majority of our sales are denominated in U.S. dollars except for certain of our revenues that are denominated in Japanese yen. Services and support sales are denominated primarily in local currency after the initial product sale. A significant amount of expenses are denominated in euro for certain expenses such as employee payroll and benefits as well as other expenses that are paid in local currency. In addition, other expenses related to our non-U.S. and non-European offices are denominated in the countries’ local currency. As such, we enter into cash flow and balance sheet hedges to mitigate our foreign currency risk.

We currently enter into foreign currency forward contracts to minimize the short-term impact of the exchange rate fluctuations on euro and Singapore dollar denominated cash flows. We currently believe these are our primary exposures to currency rate fluctuation. We have implemented a cash flow hedging strategy that is intended to mitigate our currency exposures by entering into foreign currency forward contracts that have maturities in excess of one month. These contracts are used to reduce our risk associated with exchange rate movements, as gains and losses on these contracts are intended to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows.

These foreign currency forward contracts are designated as cash flow hedges and are carried on our balance sheet at fair value with the effective portion of the foreign exchange gain (loss) being reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity and later reclassified into the statement of operations as part of income from operations when the hedged transaction affects earnings. If the underlying foreign currency requirement being hedged fails to occur, or if a portion of any derivative is deemed to be ineffective, we will recognize the gain (loss) on the associated financial instrument in operating income in the statement of operations. As of April 30, 2011, the fair value of foreign currency forward contracts designated as cash flow hedges was approximately $4.6 million. This amount is included within current assets and the related gain of $3.4 million (net of tax of $1.2 million) is included within unrealized gains in accumulated other comprehensive loss.

We also enter into foreign currency forward contracts to hedge the gains and losses generated by the remeasurement of assets and liabilities denominated in currencies other than the functional currency. These contracts are generally for a period of 30 days or less and settled by the end of the month. The change in fair value of these balance sheet hedge contracts is recorded into earnings as a component of other (expense) income, net and offsets the foreign currency impact of the remeasured assets and liabilities.

We performed a sensitivity analysis assuming a hypothetical 10 percent adverse movement in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of April 30, 2011, the analysis indicated that these hypothetical market movements would not have a material effect on our condensed consolidated financial position, results of operations or cash flows.

Investment and Interest Rate Risk

We account for our investment instruments in accordance with accounting principles generally accepted in the U.S. All of our cash and cash equivalents and marketable securities are treated as “available for sale.” Our marketable securities include commercial paper, corporate bonds, government securities, and money market funds which we believe will be redeemed within one year and auction rate securities.

Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in interest rates. Fixed rate interest securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in the market value due to changes in interest rates. However, because we classify our debt securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary. Should interest rates fluctuate by 10 percent, the value of our marketable securities would not have a significant impact on our condensed consolidated financial position, results of operations or cash flows as of April 30, 2011, and our interest income would have increased by approximately $0.2 million for the six months ended April 30, 2011.

Auction rate securities are securities that are structured with interest rate reset periods of generally less than ninety days but with contractual maturities that can be well in excess of 10 years. At the end of each interest rate reset period, investors can buy, sell or continue to hold the securities at par. As of April 30, 2011, all of our auction rate securities have experienced failed auctions. The funds associated with these auctions will not be accessible to us until a successful auction occurs, a buyer is found outside of the auction process, or the underlying securities have matured or are called by the issuer. Given the ongoing disruptions in the credit markets and the fact that the liquidity for these types of securities remains uncertain, we have classified all of our auction rate securities as long-term assets in our condensed consolidated balance sheet as of April 30, 2011, as our ability to liquidate such securities in the next 12 months is uncertain.

The fair value of our convertible senior notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the convertible notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the convertible notes will generally increase as our share price increases and decreases as the share price declines. The interest and market value changes affect the fair value of our convertible notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt. Additionally, we do not carry the convertible senior notes at fair value. We present the fair value of the convertible notes as required and for disclosure purposes only.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of April 30, 2011, pursuant to and as required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of April 30, 2011, our disclosure controls and procedures, as defined by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, were effective and designed to ensure that (i) information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at a reasonable assurance level as of April 30, 2011.

Inherent Limitations on Effectiveness of Controls

Because of its inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended April 30, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

From time to time, we are subject to legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of litigation is uncertain, we do not expect that the ultimate costs to resolve ordinary-course matters that may arise to have a material adverse effect on our condensed consolidated financial position, results of operations or cash flows.

ITEM 1A.

RISK FACTORS

The following risk factors, “We are dependent on contract manufacturers with whom we do not have long-term contracts, and changes to those relationships, expected or unexpected, may result in delays or disruptions that could cause us to lose revenue and damage our customer relationships,” “The market for semiconductor test equipment and services is highly concentrated, and we have limited opportunities to sell our test equipment and services,” “Failure to accurately estimate our customers’ demand and plan the production of our new and existing products could adversely affect our inventory levels and our income,” “We may face competition from Agilent,” “We may incur a variety of costs to engage in future acquisitions of, or investments in, companies, products or technologies, and the anticipated benefits of any acquisitions we may make may never be realized,” “Our executive officers and certain key personnel are critical to our business,” “The consummation of the Transaction is subject to conditions that are not within our control, and failure to complete the Transaction could negatively impact our share price and financial results,” “The pendency of the Transaction has been and will likely continue to be disruptive to our business and distracting for our management, employees, customers and vendors,” “The Transaction has required, and will likely continue to require, us to incur significant additional costs,” “Governmental authorities could seek to block or challenge Advantest’s proposed acquisition of all of our ordinary shares,” “At times, our stock price has fluctuated significantly, and such fluctuations in the future could result in substantial losses for our investors,” have been updated from the version of these risk factors set forth in our Annual Report on Form 10-K for the year ended October 31, 2010.

A description of the risk factors associated with our business is set forth below. As noted above, this description includes any material changes to and supersedes the description of the risk factors associated with our business previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended October 31, 2010. You should carefully consider the risks described below and the other information in this report before investing in our ordinary shares. Our business could be seriously harmed by any of these risks. The trading price of our ordinary shares could decline due to any of these risks, and you may lose all or part of your investment.

Risks Relating to Our Business

Current global economic conditions may adversely affect our business.

Our business and financial results may be affected by worldwide economic conditions. Throughout 2009 and early 2010, the semiconductor industry experienced a severe downturn fueled by the deteriorating global economic climate that drove companies to reassess their use of cash. As a result, many of our customers undertook restructuring activities and significantly cost cuts and capital spending, which adversely affected our operating results. While our revenue increased from the levels experienced in fiscal year 2009, we cannot be certain that market conditions will continue to improve or that we can sustain current revenue levels. Slow or negative growth in the domestic economy may materially and adversely affect our business, financial condition and results of operations in the foreseeable future. If market conditions deteriorate, it may negatively affect sales of our products and services, and we may experience increased collection times and greater write-offs, either of which could have a material adverse effect on our operating results, cash flow and liquidity.

Our business and operating results could be harmed by the highly cyclical nature of the semiconductor industry.

Our business and operating results depend in significant part upon capital expenditures of semiconductor designers and manufacturers, which in turn depend upon the current and anticipated market demand for products incorporating semiconductors from these designers and manufacturers. Historically, the semiconductor industry has been highly cyclical with recurring periods of diminished product demand. During these periods, semiconductor designers and manufacturers, facing reduced demand for their products, have significantly reduced their capital and other expenditures, including expenditures for semiconductor test equipment and services such as those we offer. Furthermore, because we have a high proportion of customers that are subcontractors, which during market downturns tend to reduce or cancel orders for new test systems and test services more quickly and dramatically than other customers, any downturn may cause a quicker and more significant adverse impact on our business than on the broader semiconductor industry. As a consequence, during these periods, we have experienced significant reductions in new orders for the products and services we offer, postponement or cancellation of existing customer orders, erosion of selling prices and write-offs of excess and obsolete inventory and related charges for liabilities to our contract manufacturing partners. The downturn we experienced in fiscal year 2009 went beyond the normal cycles of the semiconductor industry, and seemed to be driven by the overall global economic conditions. We expect our business to continue to be subject to cyclical downturns even when the overall economic conditions improve.

Our quarterly operating results may fluctuate significantly from period to period, and this may cause our share price to decline.

In the past, we have experienced, and in the future we expect to continue to experience, fluctuations in revenue and operating results from quarter to quarter for a variety of reasons. For example, sales of a relatively limited number of our test systems account for a substantial portion of our net revenue in any particular quarter. At the same time, our costs are relatively fixed in the short-term. Thus, changes in the timing, or terms, of a small number of transactions could disproportionately affect our operating results in any particular quarter. In addition, a substantial portion of our quarterly sales have historically been made in the last month of the quarter, and a substantial portion of those sales occur in the last week of the quarter. The timing of these sales at the end of the quarter increases the risk of unanticipated variations in quarterly results. As a result of these and other risks described elsewhere in this report, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance. If our operating results in one or more future quarters fail to meet the expectations of securities analyst or investors, an immediate and significant decline in the trading price of our ordinary shares may occur.

We have a limited ability to quickly or significantly further reduce our costs, which makes us particularly vulnerable to the highly cyclical nature of the semiconductor industry.

Since the beginning of fiscal year 2009, we have implemented a number of restructuring actions to streamline our organization and further reduce operating costs in order to address the cyclical downturn and the negative impact on our results driven by the deteriorating global economy. Among other things, our restructuring actions have included, and are expected to continue to include, reducing our global workforce, which may impair our ability to effectively develop and market products to remain competitive in the markets in which we compete and to operate effectively. Our cost saving actions could have long-term effects on our business by reducing our pool of technical talent, decreasing or slowing improvements in our products, making it more difficult for us to respond to customers, limiting our ability to increase production quickly if, and when, the demand for our products increases and limiting our ability to hire and retain key personnel.

Historically, downturns in the semiconductor industry have affected the test equipment and services market more significantly than the overall semiconductor industry. A significant portion of our overall costs are fixed. Because a high proportion of our costs are fixed, we have a limited ability to reduce expenses and inventory purchases quickly in response to decreases in orders and revenues. Moreover, to remain competitive even during downturns in the semiconductor industry or generally, we must maintain a significant level of costs, including fixed costs. As a consequence, the actions we have taken to reduce costs, and similar actions we may take in the future, may not be sufficient to sustain profitability.

Our dependence on sole source suppliers may prevent us from delivering our products on a timely basis.

We rely on sole source suppliers, some of whom are relatively small in size, for many of the components we use in our products, including custom integrated circuits, relays and other electronic components. In the past we experienced, and in the future may experience, delays in shipping our products due to our dependence on sole source suppliers. Failure of our sole source suppliers to meet our requirements in a timely manner could impair our ability to ship products and to realize the related revenues when anticipated, which could adversely affect our business and operating results.

We are dependent on contract manufacturers with whom we do not have long-term contracts, and changes to those relationships, expected or unexpected, may result in delays or disruptions that could cause us to lose revenue and damage our customer relationships.

We rely entirely on contract manufacturers, which gives us less control over the manufacturing process and exposes us to significant risks, including limited control over capacity, late delivery, quality and costs. Moreover, because our products are very complex to manufacture, transitioning manufacturing activities from one location to another, or from one manufacturing partner to another, is complicated. Although we have contracts with our contract manufacturers, those contracts do not require them to manufacture our products on a long-term basis in any specific quantity or at any specific price. In addition, it is time consuming and costly to qualify and implement additional contract manufacturer relationships. Therefore, if we fail to effectively manage our contract manufacturer relationships, or if one or more of them should experience delays, disruptions or quality control problems, or if we had to change or add additional contract manufacturers or contract manufacturing sites, our ability to ship products to our customers could be delayed.

The market for semiconductor test equipment and services is highly concentrated, and we have limited opportunities to sell our test equipment and services.

The semiconductor industry is highly concentrated in that a small number of semiconductor design manufacturers, and subcontractors account for a substantial portion of the purchases of semiconductor test equipment and services. Consolidation in the semiconductor industry is increasing this concentration. As a result of the concentration in the industry, our revenue is typically concentrated among a relatively small number of customers in any given period. For the three months ended April 30, 2011, revenue from our top ten customers accounted for approximately 56.9% of our total net revenue, with one customer individually accounting for more than 10% of our total net revenue. For the six months ended April 30, 2011, revenue from our top ten customers accounted for approximately 51.4% of our total net revenue, with one customer individually accounting for more than 10% of our total net revenue. We expect that sales of our products to continue to be concentrated with a limited number of large customers for the foreseeable future. Our financial results will depend in large part on this concentrated base of customers’ sales and business results. Our relationships with our significant customers, who frequently evaluate competitive products prior to placing new orders, could be adversely affected by a number of factors, including:

•

a decision by other customers to purchase test equipment and services from our competitors;

•

a decision by our customers to pursue the development and implementation of self-testing integrated circuits or other strategies that reduce their need for our products;

•

the loss of market share by our customers in the markets in which they operate;

•

the shift by our IDM customers to out-sourced manufacturing models;

•

our ability to keep pace with changes in semiconductor technology;

•

our ability to maintain quality levels of our equipment and services that meet customer expectations;

•

our ability to produce and deliver sufficient quantities of our test equipment in a timely manner; and

•

our ability to provide quality customer service and support.

The loss of a significant customer, whether as a result of a failure or consolidation, will further concentrate, and could adversely impact, sales of our products.

If we do not maintain and expand existing customer relationships and establish new customer relationships, our ability to generate revenue growth will be adversely affected.

Our ability to increase our sales will depend in large part upon our ability to obtain orders for new test systems, enhancements for existing test systems and services from our existing and new customers. Maintaining and expanding our existing relationships and establishing new ones can require substantial investment without any assurance from customers that they will place significant orders. Moreover, if we are unable to provide new test systems, enhancements for existing test systems and services to our customers in a timely fashion or in sufficient quantities, our business will be harmed. In the past we have experienced, and in our industry it is not unusual to experience, difficulty in delivering new test equipment, product enhancements, and upgrades. When we encountered difficulties in the past, our customer relationships and our ability to generate additional revenue from customers were harmed. Our inability to meet the demands of customers would damage our reputation, which would make it more difficult for us to sell test equipment, enhancements and services to existing, as well as new, customers and would adversely affect our ability to generate revenue.

In addition, we face significant obstacles in establishing new customer relationships. It is difficult to establish relationships with new customers because such companies may have existing relationships with our competitors, may be unfamiliar with our product and service offerings, may have an installed base of test equipment sufficient for their current needs or may not have the resources necessary to transition to, and train their employees on, our test equipment. Even if we do succeed in establishing new relationships, these new customers may continue to favor our competitors, as our competitors may have had longer relationships with these customers or may maintain a larger installed base of their competing test equipment and only purchase limited quantities from us. In addition, we could face difficulties in our efforts to develop new customer relationships abroad as a result of buying practices that may favor local competitors or non-local competitors with a larger presence in local economies than we have. As a result, we may be forced to partner with local companies in order to compete for business and such arrangements, if available, may not be achieved on economically favorable terms, which could negatively affect our financial performance.

Failure to accurately estimate our customers’ demand and plan the production of our new and existing products could adversely affect our inventory levels and our income.

Given the cyclical nature of the semiconductor industry, we cannot reliably forecast the timing and size of our customers’ orders. In order to meet anticipated demand, we must order components and build inventory before we actually receive purchase orders, which includes inventory at our contract manufacturers and suppliers where we have non-cancelable purchase commitments. Our results could be harmed if we do not accurately estimate our customers’ product demands and are unable to adjust our purchases according to market fluctuations, including those caused by the cyclical nature of the semiconductor industry. During a market upturn, our results could be materially and adversely affected if we cannot increase our purchases of components, parts and services quickly enough to meet increasing demand for our products, including securing sufficient capacity from our contract manufacturers. During a market downturn, we could have excess inventory that we would not be able to sell, resulting in inventory write-downs and in potential related liabilities to our contract manufacturing partners. For the six months ended April 30, 2011, we recorded gross inventory-related provisions of $11.4 million. Having insufficient or excess inventory could have a material adverse effect on our business, financial condition and results of operations.

Further, if we do not successfully manage the introduction of our new products and estimate customer demand for such products, our ability to sell existing inventory may be adversely affected. If demand for our new products exceeds our projections, we might have insufficient quantities of products for sale to our customers, which could cause us to miss opportunities to increase revenues during market upturns. If our projections exceed demand for our new products or if some of our customers cancel their current orders for our old products in anticipation of our new products, we may have excess inventories of our products and excess obsolete inventories, which could result in material future inventory write-downs that would adversely affect our financial performance.

Existing customers may be unwilling to bear expenses associated with transitioning to new and enhanced products.

In order to grow our business, we need to sell new and enhanced products. Certain customers may be unwilling, or unable, to bear the costs of implementing new test equipment platforms or enhancements, particularly during semiconductor industry downturns. As a result, it may be difficult to market and sell these products and customers may continue to buy upgrades to older existing product lines which may be a lower cost alternative. As we introduce new test equipment and enhancements, we cannot predict with certainty when, or if, our customers will transition to those new product platforms. Any delay in, or failure of our customers to transition to, new products and enhancements could result in excess inventories, which could result in inventory write-downs that would adversely affect our financial performance.

If we do not introduce new test equipment platforms and upgrade existing test equipment platforms in a timely manner, and if we do not offer comprehensive and competitive services for our test equipment platforms, our test equipment and services will become obsolete, and we could lose existing customers and our operating results will suffer.

The semiconductor design and manufacturing industry into which we sell our test equipment is characterized by rapid technological changes, frequent new product introductions, including upgrades to existing test equipment, and evolving industry standards. The success of our new or upgraded test equipment offerings will depend on several factors, including our ability to:

•

properly identify customer needs and anticipate technological advances and industry trends, such as the disaggregation of the traditional IDM semiconductor supply chain into fabless design companies, foundries and packaging, assembly and test providers;

•

develop and commercialize new and enhanced technologies and applications that meet our customers’ evolving performance requirements in a timely manner;

•

develop and deliver enhancements and related services for our current test equipment that are capable of satisfying our customers’ specific test requirements; and

•

introduce and promote market acceptance of new test equipment platforms.

In many cases, our test equipment and services are used by our customers to develop, test and manufacture their new products. We therefore must anticipate industry trends and develop new test equipment platforms or upgrade existing test equipment platforms in advance of the commercialization of our customers’ products. In addition, new methods of testing integrated circuits, such as self-testing integrated circuits, may be developed which would render our test equipment uncompetitive or obsolete if we failed to adopt and incorporate these new methods into our new or existing test equipment platforms. Developing new test equipment platforms and upgrading existing test equipment platforms requires a substantial investment before we can determine the commercial viability of the new or upgraded platform.

As our customers’ product requirements are diverse and subject to frequent change, we also need to ensure that we have an adequate mix of products that meet our customers’ varying requirements. If we fail to adequately predict our customers’ needs and technological advances, we may invest heavily in research and development of test equipment that does not lead to significant revenue, or we may fail to invest in technology necessary to meet changing customer demands. Without the timely introduction of new or upgraded test equipment that reflects technological advances, our test equipment and services would likely become obsolete, we may have difficulty retaining customers and our revenue and operating results would suffer.

Our long and variable sales cycle depends upon factors outside of our control, and we may expend significant time and resources prior to earning any associated revenues.

Sales of our semiconductor test equipment and services depend in significant part upon semiconductor designers and manufacturers upgrading existing manufacturing equipment to accommodate the requirements of new semiconductor devices and expanding existing, and adding new, manufacturing facilities. As a result, our sales are subject to a variety of factors we cannot control, including:

•

the complexity of our customers’ fabrication processes, which impacts the number of our test systems and amount of our product enhancements and upgrades our customers require;

•

the willingness of our customers to adopt new or upgraded test equipment platforms;

•

the internal technical capabilities and sophistication of our customers, which impacts their need for our test services; and

•

the capital expenditures of our customers.

The decision to purchase our equipment and services generally involves a significant commitment of capital. As a result, our test equipment has lengthy and variable sales cycles during which we may expend substantial funds and management effort to secure a sale prior to receiving any commitment from a customer to purchase our test equipment or services. Prior to completing sales to our customers, we are often subject to a number of significant risks, including the risk that our competitors may compete for the sale or that the customer may change its technological requirements. Our business, financial condition and results of operations may be materially adversely affected by our long and variable sales cycle and the uncertainty associated with expending substantial funds and effort with no guarantee that sales will be made.

We face substantial competition which, among other things, may lead to price pressure and adversely affect our sales and revenue.

We face substantial competition throughout the world in each of our product areas. Our most significant competitors historically have included Advantest Corporation, Teradyne, Inc., LTX-Credence Corporation, and Yokogawa Electric Corporation. Some of our competitors have substantially greater financial resources, broader product offerings, more extensive engineering, manufacturing, marketing and customer support capabilities or a greater presence in certain countries than we do. We may have less leverage with component vendors than some of our competitors. Also, some of our competitors have greater resources and may be more willing or able than we are to put capital at risk to win business. Price reductions by our competitors may force us to lower our prices. We also expect our current competitors to continue to improve the performance of their current products and to introduce new products, technologies or services that could adversely affect sales of our current and future test equipment and services. Additionally, current and future competitors may introduce testing technologies, equipment and services, which may in turn reduce the value of our own test equipment and services. Any of these circumstances may limit our opportunities for growth and negatively impact our financial performance.

Test systems that contain defects that harm our customers could damage our reputation and cause us to lose customers and revenue.

Our test equipment is highly complex and employs advanced technologies. The use of complex technology in our test equipment increases the likelihood that we could experience design, performance or manufacturing problems. If any of our products have defects or reliability or quality problems, we may, be exposed to liability, our reputation could be damaged significantly, and customers might be reluctant to buy our products, which could result in a decline in revenues, an increase in product returns, loss of existing customers, or the failure to attract new customers.

We may face competition from Agilent.

Pursuant to the intellectual property matters agreement between us and Agilent that was entered into in connection with our separation from Agilent, Agilent transferred all of the intellectual property rights it held that relate exclusively to our products to us and agreed that, prior to October 31, 2009, it would not develop, manufacture, distribute, support or service automated test equipment for providing high-volume functional test of integrated circuits (including memory and high-speed memory devices and SOCs or SIPs) or components for automated semiconductor test systems. Agilent retained, and only licensed to us, the intellectual property rights to underlying technologies used in both our products and the products of Agilent.

With the expiration of the agreement not to compete on October 31, 2009, Agilent may compete with any portion, or all, of our business without restriction, and in doing so, can use the retained underlying technologies. Agilent is not permitted to use the intellectual property rights transferred to us and licensed from us back to Agilent, to compete with us with respect to our core business of developing, manufacturing, selling and supporting automated semiconductor test systems. Agilent is, however, able to use such intellectual property rights to develop and sell components for such systems, including systems developed and sold by us as well as those developed and sold by our competitors. While selling components has not represented a material portion of our business in the past, and is not expected to be an area of focus for the near future, our business could be adversely affected if systems offered by our competitors become more competitive as a result of Agilent supplying components for our competitors’ systems or if, by buying components from Agilent, our customers are able to delay, or bypass altogether, purchasing newer systems from us.

Third parties may compete with us by using intellectual property that Agilent licensed to us under the intellectual property matters agreement.

Under the intellectual property matters agreement, Agilent retained and only licensed to us the intellectual property rights to underlying technologies used in both our products and the products of Agilent. Under the agreement, Agilent remains free to license the intellectual property rights to the underlying technologies to any party, including our competitors. The intellectual property that Agilent retained and that can be licensed in this manner does not relate solely or primarily to one or more of our products, or groups of products, rather, the intellectual property that Agilent licensed to us is generally used broadly across our entire product portfolio. Competition by third parties using the underlying technologies retained by Agilent could harm our business and operating results.

Third parties may claim we are infringing upon their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling our products or services.

Our industry has been, and continues to be, characterized by uncertain and conflicting intellectual property claims and vigorous protection and pursuit of these rights. As a result, third parties may claim that we are infringing on their intellectual property rights, and 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 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. However, 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 and services.

Third parties may infringe upon our intellectual property, and we may expend significant resources enforcing our rights or suffer competitive injury.

Our success depends in large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. If we fail to protect our intellectual property rights, our competitive position could suffer, which could harm our operating results. We may be required to spend significant resources to monitor and protect our intellectual property rights and there can be no assurance that, even with significant expenditures, we will be able to protect our intellectual property rights.

In addition, our agreements with Agilent, and in particular the intellectual property matters agreement, set forth the terms and provisions under which we received the intellectual property rights necessary to operate our business. Under our agreements with Agilent, we do not have the right to enforce against third parties intellectual property rights we license from Agilent, and Agilent is under no obligation to enforce such rights on our behalf.

Intellectual property rights are difficult to enforce in certain countries, which may inhibit our ability to protect our intellectual property rights or those of our suppliers and customers in those countries.

The laws of some countries do not offer the same level of protection of our proprietary rights as the laws of the United States, and we may be subject to unauthorized use of our products or technologies in those countries, particularly in Asia, where we expect our business to continue to expand in the foreseeable future. Consequently, we cannot assure you that we will be able to protect our intellectual property rights or have adequate legal recourse in the event that we encounter difficulties with infringements of intellectual property under local law.

We may incur a variety of costs to engage in future acquisitions of, or investments in, companies, products or technologies, and the anticipated benefits of any acquisitions we may make may never be realized.

We may acquire, or make significant or minority investments in, complementary businesses, products or technologies. For example, in fiscal year 2009, we acquired substantially all of the assets of Touchdown, and currently, we are in a pending acquisition by Advantest Corporation. This pending transaction and any future acquisitions or investments could be accompanied by risks such as:

•

difficulties in assimilating the operations and personnel of acquired companies;

•

diversion of our management’s attention from ongoing business concerns;

•

our potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology and rights into our products and services;

•

additional expense associated with amortization of acquired assets;

•

difficulty in maintaining uniform standards, controls, procedures and policies;

•

impairment of existing relationships with employees, suppliers and customers as a result of the integration of new management personnel;

•

dilution to our shareholders in the event we issue shares as consideration to finance an acquisition;

•

impairment of goodwill associated with the acquisition or investment, requiring us to record a significant charge to earnings;

•

difficulty integrating and implementing the accounting controls necessary to comply with regulatory requirements such as Section 404 of the Sarbanes-Oxley Act; and

•

increased leverage, if we incur debt to finance an acquisition.

We cannot guarantee that we will realize any benefit from the integration of any business, products or technologies that we might acquire in the future, and our failure to do so could harm our business.

Our executive officers and certain key personnel are critical to our business.

Our future operating results will depend substantially upon the performance of our executive officers and key personnel. Our future operating results also depend in significant part upon our ability to attract and retain qualified management, manufacturing, technical, application engineering, marketing, sales and support personnel. Competition for qualified personnel is intense, and we cannot ensure success in attracting or retaining qualified personnel. We are more susceptible to losing key talent due to the uncertainty created by our current transaction-related activities. Our business is particularly dependent on expertise which only a very limited number of engineers possess and it may be increasingly difficult for us to hire personnel over time. We operate in several geographic locations, including parts of Asia and Silicon Valley, where the labor markets, especially for application engineers, are particularly competitive. Our business, financial condition, and results of operations could be materially adversely affected by the loss of any of our key employees, by the failure of any key employee to perform in his or her current position, or by our inability to attract and retain skilled employees, particularly engineers.

Funds associated with our auction rate securities may not be accessible for in excess of 12 months and our auction rate securities may experience an other-than-temporary decline in value, which would adversely affect our income.

As of April 30, 2011, all of our auction rate securities have experienced failed auctions. The funds associated with these auctions will not be accessible to us until a successful auction occurs, a buyer is found outside of the auction process, or the underlying securities have matured or are called by the issuer. Given the ongoing disruptions in the credit markets and the fact that the liquidity for these types of securities remains uncertain, we have classified all of our auction rate securities as long-term assets in our condensed consolidated balance sheet as of April 30, 2011, as our ability to liquidate such securities in the next 12 months is uncertain.

Our effective tax rate may vary significantly from period to period, and we could owe significant taxes even during periods when we experience low operating profit or operating losses.

We are incorporated in Singapore and have negotiated tax incentives with the Singapore Economic Development Board, an agency of the Government of Singapore, which have been approved by Singapore’s Ministry of Finance and Ministry of Trade and Industry. Under the incentives, a portion of the income we earn in Singapore during these ten to fifteen year incentive periods is subject to reduced rates of Singapore income tax. The incentive tax rates will expire in various fiscal years beginning in fiscal 2016. The Singapore corporate income tax rates that would apply, absent the incentives, is 17% for fiscal years 2010 and 2009. Without these incentives, our income taxes would have increased by $4 million or $0.07 per share (diluted) for fiscal year 2010, and decreased by $21 million or $0.35 per share (diluted) for fiscal year 2009. In order to receive the benefit of the incentives, we must develop and maintain in Singapore certain functions such as procurement, financial services, order management, credit and collections, spare parts depot and distribution center, a refurbishment center and regional activities like an application development center.

In addition to these qualifying activities, we must hire a specified number of employees and maintain minimum levels of investment in Singapore. We have from two to nine years to phase-in the qualifying activities and to hire the specified numbers of employees. If we do not fulfill these conditions for any reason, our incentive could lapse, our income in Singapore would be subject to taxation at higher rates, and our overall effective tax rate could be between fifteen to twenty percentage points higher than would have been the case had we maintained the benefit of the incentives.

In addition, our effective tax rate may vary significantly from period to period because, for example, we may owe significant taxes in jurisdictions other than Singapore during periods when we are profitable in those jurisdictions even though we may be experiencing low operating profit or operating losses on a consolidated basis. Our effective tax rate varies based on a variety of factors, including overall profitability, the geographical mix of income or loss before taxes and the related tax rates in the jurisdictions where we operate. In addition, there is no assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals. Certain combinations of these factors could cause us to owe significant taxes even during periods when we experience low income before taxes or loss before taxes.

Currently, we do not maintain a valuation allowance for any deferred tax assets, except for capital losses, as we believe that it is more likely than not that all deferred tax assets will be realized. If we generate significant losses, we may be required to establish a valuation for deferred tax assets depending on our future profitability. This would result in an incremental tax provision and could adversely impact our results of operations.

We sell our products and services worldwide, and our business is subject to risks inherent in conducting business activities in geographies outside of the United States.

Our corporate headquarters are in the United States, however, we sell our products and services worldwide. As a result, our business is subject to risks associated with doing business internationally. The economies of Asia, where a large majority of our revenue comes from, have been highly volatile and recessionary in the past, resulting in significant fluctuations in demand. Our exposure to the business risks presented by the economies of Asia would increase to the extent that we expand our operations in that region.

Our international activities subject us to a number of risks associated with conducting operations internationally, including:

•

difficulties in managing geographically disparate operations;

•

potential greater difficulty and longer time in collecting accounts receivable from customers located abroad;

•

difficulties in enforcing agreements through non-U.S. legal systems;

•

unexpected changes in regulatory requirements that may limit our ability to export our software or sell into particular jurisdictions or impose multiple conflicting tax laws and regulations;

•

political and economic instability, civil unrest or war;

•

terrorist activities and health risks such as the “flu epidemic” and SARS that impact international commerce and travel;

•

difficulties in protecting our intellectual property rights, particularly in countries where the laws and practices do not protect proprietary rights to as great an extent as do the laws and practices of the United States;

•

changing laws and policies affecting economic liberalization, foreign investment, currency convertibility or exchange rates, taxation or employment; and

•

nationalization of foreign owned assets, including intellectual property.

In addition, we are exposed to foreign currency exchange movements versus the U.S. dollar, particularly the euro and the Japanese yen. With respect to revenue, our primary exposure exists during the period between execution of a purchase order denominated in a foreign currency and collection of the related receivable. During this period, changes in the exchange rates of the foreign currency to the U.S. dollar will affect our revenue, cost of sales and operating margins and could result in exchange gains or losses. While a significant portion of our purchase orders to date have been denominated in U.S. dollars, competitive conditions may require us to enter into an increasing number of purchase orders denominated in foreign currencies. We incur a variety of costs in foreign currencies, including some of our manufacturing costs, component costs and sales costs. Therefore, as we expand our operations in Asia, we may become more exposed to a strengthening of currencies in the region against the U.S. dollar. We cannot assure you that any hedging transactions we may enter into will be effective or will not result in foreign exchange hedging gains or losses. As a result, we are exposed to greater risks in currency fluctuations.

If our facilities or the facilities of our contract manufacturers were to experience catastrophic loss due to natural disasters, our operations would be seriously harmed.

Our facilities and the facilities of our contract manufacturers could be subject to a catastrophic loss caused by natural disasters, including fires and earthquakes. We and our contract manufacturers have significant facilities in areas with above average seismic activity, such as California, Japan and Taiwan. If any of these facilities were to experience a catastrophic loss, it could disrupt our operations, delay production and shipments, reduce revenue and result in large expenses to repair or replace the facility. We do not carry catastrophic insurance policies that cover potential losses caused by earthquakes.

Risks Relating to the pending Transaction with Advantest Corporation

The consummation of the Transaction is subject to conditions that are not within our control, and failure to complete the Transaction could negatively impact our share price and financial results.

On March 28, 2011 (Japan Time), we entered into an Implementation Agreement (the “Implementation Agreement”) with Advantest Corporation pursuant to which, subject to the satisfaction or waiver of certain conditions, all of the issued and outstanding ordinary shares of Verigy will be transferred to Advantest in exchange for US$15.00 per share in cash (the “Transaction”). The Transaction is subject to numerous closing conditions, including but not limited to, the approval of our shareholders, the sanction of the High Court of the Republic of Singapore (the “Singapore Court”) and review by the Antitrust Division of the Department of Justice (the “DOJ”) and the Federal Trade Commission under the HSR Act. On May 20, 2011, Verigy filed a definitive proxy statement with the SEC in connection with the Transaction and expects to hold a special meeting of shareholders on June 17, 2011 to approve the Transaction. Even if the requisite majority of our shareholders approve of the Transaction, the Transaction must then be reviewed and approved by the Singapore court. While we do not anticipate that the proposal to approve the Transaction will be rejected by either our shareholders or by the Singapore court, there can be no assurance that we will receive the number of shareholder votes required under Singapore law to approve the Transaction. Further, we cannot predict whether the Singapore court will sanction the Transaction, notwithstanding the approval of our shareholders.

On February 18, 2011, the DOJ issued a second request under the HSR Act in connection with its review of the Transaction. Under the HSR Act, the Transaction cannot be completed until the expiration or termination of a 30-day waiting period following the certification of substantial compliance with the second request by Advantest. Verigy and Advantest have certified substantial compliance with the second request and are actively working with the DOJ to facilitate the review of the Transaction, however, there can be no guarantee that the DOJ will clear the Transaction, in which case the Transaction could not be consummated unless and until Advantest prevailed in litigation against the DOJ. Such litigation would be time consuming and expensive and the outcome uncertain. In addition, the Transaction is subject to review by certain other governmental authorities under the antitrust laws of various other jurisdictions where Verigy and Advantest conduct business. Assuming all regulatory clearances, consents and approvals required to complete the Transaction were received, which cannot be guaranteed, even after the statutory waiting periods have expired, and after completion of the Transaction, governmental authorities could seek to block or challenge the Transaction as they deem necessary or desirable in the public interest. In addition, in some jurisdictions, a competitor, customer or other third party could initiate a private action under the antitrust laws challenging or seeking to enjoin the Transaction, before or after it is completed.

All of the matters described above, alone or in combination, could cause the failure of the Transaction to be consummated. If the Transaction does not close, the price of our ordinary shares may drop to the extent that the current market price of our ordinary shares reflects an assumption that the Transaction will be completed. On December 3, 2010, the day before the announcement of the Transaction, the closing price of our ordinary shares was $9.14. On December 7, 2010, following the announcement of the Transaction, the closing price of our ordinary shares was $13.15. Further, a failed Transaction may result in litigation, negative publicity and a negative impression of us in the investment community. Any disruptions to our business resulting from the announcement and pendency of the Transaction and from intensifying competition from our competitors, including any adverse changes in our relationships with our customers, vendors and employees, could continue or accelerate in the event of a failed Transaction. There can be no assurance that our share price, business, these relationships or our financial condition will not be adversely affected, as compared to the condition prior to the announcement of the Transaction, if the Transaction is not consummated.

The pendency of the Transaction has been and will likely continue to be disruptive to our business and distracting for our management, employees, customers and vendors.

The announcement and pendency of the Transaction has caused, and may continue to cause, disruptions in our business. For example, customers have already and may continue to delay, reduce or even cease making purchases from us until they determine whether the Transaction will affect our products and services. Our current and potential customers, vendors and business partners may terminate, or choose not to renew or enter into, arrangements with us because of the uncertainty surrounding the Transaction. In addition, certain customers may give greater priority to products of our competitors until they determine whether the Transaction will affect our products and services or our relationship with them. Further, key personnel may depart for a variety of reasons, including perceived uncertainty as to the affect of the Transaction on their employment, and this uncertainty may adversely affect our ability to hire new talent. The loss of key personnel could adversely affect our relationships with our customers, vendors and other employees. These disruptions may increase over time until the closing of the Transaction, and we cannot provide any assurance as to when the Transaction will close, if it will close at all.

The Implementation Agreement generally requires us to operate our business in the ordinary course pending consummation of the Transaction, but includes certain contractual restrictions on the conduct of our business that could affect our ability to execute on our business strategies and attain our financial goals, and the pendency of the Transaction and the completion of the conditions to closing could divert the time and attention of our management. The uncertainty caused by the combination of the LTXC merger, while it was pending, and the Transaction, has resulted in a significant distraction for our customers, vendors, management and employees and may harm our business and have a material adverse effect on our results of operations.

The Transaction has required, and will likely continue to require, us to incur significant additional costs.

Advantest’s unsolicited proposal to acquire all of our outstanding shares occurred during the pendency of our proposed merger with LTXC, and in connection with the termination of the merger agreement with LTXC, we were required to pay LTXC a $15 million break-up fee. Further, in addition to the legal, accounting and advisory fees associated with the Transaction generally, the compliance with the second request from the DOJ has required us to invest substantial human and financial resources, and resulted in the incurrence of significant additional expenses which have been material to our financial position and results of operations, including our financial results in the three months ended April 30, 2011. In addition, if the Transaction is terminated upon the occurrence of certain triggering events, as described in the Implementation Agreement, we may be required to pay Advantest a termination fee of $7.5 million.

Governmental authorities could seek to block or challenge Advantest’s proposed acquisition of all of our ordinary shares.

The proposed Transaction with Advantest is subject to review by the Antitrust Division of the DOJ and the FTC under the HSR Act. On February 18, 2011, the DOJ issued a second request under the HSR Act in connection with its review of Advantest’s proposal. Verigy and Advantest have certified substantial compliance with the second request and are actively working with the DOJ to facilitate the review of the Transaction. The second request required us to invest human and financial resources, and there can be no guarantee that the DOJ will clear any proposed Advantest transaction, in which case Advantest would not be able to consummate an acquisition of our ordinary shares unless and until Advantest prevailed in litigation against the DOJ. Such litigation would be time consuming and expensive and the outcome uncertain. In addition, the Transaction with Advantest is also subject to review by certain other governmental authorities under the antitrust laws of various other jurisdictions where Verigy and Advantest conduct business. Assuming all regulatory clearances, consents and approvals required to complete the acquisition of our ordinary shares were received, which cannot be guaranteed, even after the statutory waiting periods have expired, and after completion of the Transaction, governmental authorities could seek to block or challenge the Transaction as they deem necessary or desirable in the public interest. In addition, in some jurisdictions, a competitor, customer or other third party could initiate a private action under the antitrust laws challenging or seeking to enjoin Advantest’s acquisition of our ordinary shares, before or after it is completed.

Risks Related to the Securities Markets and Ownership of Our Ordinary Shares.

If we were classified as a passive foreign investment company, there would be adverse tax consequences to U.S. holders of our ordinary shares.

If we were classified as a “passive foreign investment company” or “PFIC” under section 1297 of the Internal Revenue Code, of 1986, as amended, or the Code, for any taxable year during which a U.S. holder holds ordinary shares, such U.S. holder generally would be taxed at ordinary income tax rates on any gain realized on the sale or exchange of the ordinary shares and on any “excess distributions” (including constructive distributions) received on the ordinary shares. Such U.S. holder could also be subject to a special interest charge with respect to any such gain or excess distribution.

We would be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which either (i) at least 75% of our gross income is passive income or (ii) on average, the percentage of our assets that produce passive income or are held for the production of passive income is at least 50% (determined on an average gross value basis). We were not classified as a PFIC for the first half of fiscal year 2011 or in any prior taxable year. Whether we will, in fact, be classified as a PFIC for any subsequent taxable year depends on our assets and income over the course of the relevant taxable year and, as a result, cannot be predicted with certainty. In particular, because the total value of our assets for purposes of the asset test will be calculated based upon the market price of our ordinary shares, a significant and sustained decline in the market price of our ordinary shares and corresponding market capitalization relative to our passive assets could result in our being classified as a PFIC. There can be no assurance that we will not be classified as a PFIC in the future or the Internal Revenue Service will not challenge our determination concerning PFIC status for any prior period.

At times, our stock price has fluctuated significantly, and such fluctuations in the future could result in substantial losses for our investors.

The trading price of our ordinary shares has at times fluctuated significantly. For example, during the three months ended April 30, 2011, the trading price of our ordinary shares ranged from a low of $12.27 to a high of $15.09. Fluctuations have occurred and may continue to occur in response to various factors, many of which we cannot control, including:

•

general economic and political conditions and specific conditions in the semiconductor industry;

•

changes in expectations as to our future financial performance, including financial estimates, ratings or publication of research reports by securities analysts;

•

strategic moves by us or our competitors, such as acquisitions or restructurings;

•

announcements of new products or technical innovations by us or our competitors;

•

actions by institutional shareholders; and

•

speculation in the press or investment community.

Accordingly, investors may not be able to resell their ordinary shares at or above the price they paid.

We may become involved in securities litigation that could divert management’s attention and harm our business.

The stock market in general, and The NASDAQ Global Select Market and the securities of semiconductor capital equipment companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the affected companies. These market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Such litigation, whether or not meritorious, could result in the expenditure of substantial funds, divert management’s attention and resources, and harm our reputation in the industry and the securities markets, which would reduce our profitability and harm our business.

It may be difficult for investors to effect service of process within the United States on us or to enforce civil liabilities under the U.S. federal securities laws of the United States against us.

We are incorporated in Singapore. Some of our officers and directors reside outside the United States. A substantial portion of our assets is located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon us. Similarly, investors may be unable to enforce judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States against us in U.S. courts. Judgments of U.S. courts based upon the civil liability provisions of the federal securities laws of the United States are not directly enforceable in Singapore courts and are not given the same effect in Singapore as judgments of a Singapore court. Accordingly, there can be no assurance as to whether Singapore courts will enter judgments in actions brought in Singapore courts based upon the civil liability provisions of the federal securities laws of the United States.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 5.

OTHER INFORMATION

ITEM 6.

EXHIBITS

(a) Exhibits:

Exhibit
Number

Incorporated By Reference

Exhibit Description

Form

File Number

Exhibit

Date

Filed Herewith

2.1

Master Separation and Distribution Agreement between Agilent and Verigy Ltd., effective May 31, 2006

S-1/A

333-132291

2.1

6/5/2006

2.2

Agreement and Plan of Merger by and among Verigy Ltd., Alisier Limited, Lobster-1 Merger Corporation, Lobster-2 Merger Corporation, and LTX-Credence Corporation, dated as November 17, 2010

8-K

000-52038

2.1

11/18/2010

2.3

Implementation Agreement by and between Advantest Corporation and Verigy Ltd. dated as of March 18, 2011

8-K

000-52038

2.1

03/28/2011

3.1

Amended and Restated Memorandum and Articles of Association of Verigy Ltd.

S-1/A

333-132291

3.2

6/5/2006

4.1

Form of Specimen Share Certificate for Verigy Ltd.’s Ordinary Shares

S-1/A

333-132291

4.1

6/1/2006

10.1**

Acquisition Payment Agreement by and between Verigy Ltd. and Keith L. Barnes, dated March 25, 2011.

8-K

000-52038

10.1

3/28/2011

10.2**

Addendum to the Managing Director’s Service Contract by and between Verigy Germany Gmbh and Hans-Jurgen Wagner, dated March 25, 2011

8-K

000-52038

10.2

3/28/2011

10.3**

Addendum to the Employment Contract by and between Verigy France SAS and Pascal Ronde, dated March 25, 2011

8-K

000-52038

10.3

3/28/2011

31.1

Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit
Number

Incorporated By Reference

Exhibit Description

Form

File Number

Exhibit

Date

Filed Herewith

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

The financial information contained in these XBRL documents is unaudited and these are not the official publicly filed financial statements of Verigy, Ltd. The purpose of submitting these XBRL documents is to test the related format and technology, and, as a result, investors should continue to rely on the official filed version of the furnished documents and not rely on this information in making investment decisions. In accordance with Rule 402 of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

**	Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

VERIGY LTD.

EXHIBIT INDEX

Exhibit
Number

Incorporated By Reference

Exhibit Description

Form

File Number

Exhibit

Date

Filed Herewith

2.1

Master Separation and Distribution Agreement between Agilent and Verigy Ltd., effective May 31, 2006

S-1/A

333-132291

2.1

6/5/2006

2.2

Agreement and Plan of Merger by and among Verigy Ltd., Alisier Limited, Lobster-1 Merger Corporation, Lobster-2 Merger Corporation, and LTX-Credence Corporation, dated as November 17, 2010

8-K

000-52038

2.1

11/18/2010

2.3

Implementation Agreement by and between Advantest Corporation and Verigy Ltd. dated as of March 18, 2011

8-K

000-52038

2.1

03/28/2011

3.1

Amended and Restated Memorandum and Articles of Association of Verigy Ltd.

S-1/A

333-132291

3.2

6/5/2006

4.1

Form of Specimen Share Certificate for Verigy Ltd.’s Ordinary Shares

S-1/A

333-132291

4.1

6/1/2006

10.1**

Acquisition Payment Agreement by and between Verigy Ltd. and Keith L. Barnes, dated March 25, 2011.

8-K

000-52038

10.1

3/28/2011

10.2**

Addendum to the Managing Director’s Service Contract by and between Verigy Germany Gmbh and Hans-Jurgen Wagner, dated March 25, 2011

8-K

000-52038

10.2

3/28/2011

10.3**

Addendum to the Employment Contract by and between Verigy France SAS and Pascal Ronde, dated March 25, 2011

8-K

000-52038

10.3

3/28/2011

31.1

Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

**	Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company