Xcerra Corp - FORM 10-Q - March 9, 2012

Attached files

Attached files

Stock widget

Investing forum

Xcerra Corp Reports

Also read

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Xcerra Corp	Financial_Report.xls
EX-32 - CERTIFICATION OF CEO AND CFO, SECTION 906 - Xcerra Corp	d276616dex32.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER, SECTION 302 - Xcerra Corp	d276616dex311.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER, SECTION 302 - Xcerra Corp	d276616dex312.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 January 31, 2012

¨	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: 000-10761

LTX-CREDENCE CORPORATION

(Exact name of registrant as specified in its charter)


Massachusetts		04-2594045
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

825 University Ave, Norwood, Massachusetts		02062
(Address of principal executive offices)		(Zip Code)

(781) 461-1000

(Registrant’s telephone number, including area code)

[None]

(Former name, former address and former fiscal year, if changed since last report)

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). Yes x 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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at March 6, 2012
Common Stock, $0.05 par value per share		49,009,220 shares

LTX-CREDENCE CORPORATION

Index


		Page Number

Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of January 31, 2012 and July 31, 2011		3

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended January 31, 2012 and January 31, 2011		4

	Consolidated Statements of Cash Flows for the Six Months Ended January 31, 2012 and January 31, 2011		5

	Notes to Consolidated Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24

Item 4.	Controls and Procedures		24

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings		25

Item 1A.	Risk Factors		25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		26

Item 6.	Exhibits		26

	SIGNATURE		27

	EXHIBIT INDEX		28

LTX-CREDENCE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)


	January 31, 2012			July 31, 2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	40,433		$	123,198
Marketable securities		103,319			39,417
Accounts receivable—trade, net of allowances of $40		20,761			42,646
Accounts receivable—other		714			408
Inventories		28,449			21,145
Prepaid expenses and other current assets		3,573			4,368

Total current assets		197,249			231,182
Property and equipment, net		19,202			20,827
Intangible assets, net		4,735			6,317
Goodwill		43,030			43,030
Other assets		1,305			759

Total assets	$	265,521		$	302,115

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,422		$	15,232
Accrued expenses		17,104			24,677
Deferred revenue		5,439			5,589

Total current liabilities		28,965			45,498
Other long-term liabilities		14,557			15,897
Commitments and contingent liabilities (Note 5)
Stockholders’ equity:
Common stock		2,450			2,480
Additional paid-in capital		751,858			756,046
Accumulated other comprehensive income		134			41
Accumulated deficit		(532,443	)		(517,847	)

Total stockholders’ equity		221,999			240,720

Total liabilities and stockholders’ equity	$	265,521		$	302,115

See accompanying Notes to Consolidated Financial Statements.

LTX-CREDENCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except per share data)


	Three Months Ended January 31,						Six Months Ended January 31,
	2012			2011			2012			2011
Net product sales	$	15,025		$	41,665		$	39,009		$	106,906
Net service sales		9,057			10,884			18,825			21,290

Net sales		24,082			52,549			57,834			128,196
Cost of sales		13,202			21,126			28,917			49,527

Gross profit		10,880			31,423			28,917			78,669
Engineering and product development expenses		12,364			12,895			25,280			25,874
Selling, general and administrative expenses		8,346			12,691			17,667			25,856
Amortization of purchased intangible assets		791			1,490			1,582			2,980
Restructuring		141			—			187			116

Income (loss) from operations		(10,762	)		4,347			(15,799	)		23,843
Other income (expense):
Interest expense		(42	)		(63	)		(82	)		(145	)
Investment income		246			84			384			153
Other income, net		199			190			352			394

Income (loss) before provision for (benefit from) income taxes		(10,359	)		4,558			(15,145	)		24,245
Net benefit from income taxes		(671	)		(147	)		(549	)		(135	)

Net income (loss)	$	(9,688	)	$	4,705		$	(14,596	)	$	24,380

Net income (loss) per share:
Basic	$	(0.20	)	$	0.10		$	(0.30	)	$	0.49
Diluted	$	(0.20	)	$	0.09		$	(0.30	)	$	0.49
Weighted-average common and common equivalents shares used in computing net income (loss) per share:
Basic		48,961			49,384			49,225			49,279
Diluted		48,961			50,042			49,225			50,094
Comprehensive income (loss):
Net income (loss)	$	(9,688	)	$	4,705		$	(14,596	)	$	24,380
Unrealized gain (loss) on marketable securities		110			(17	)		93			(2	)

Comprehensive income (loss)	$	(9,578	)	$	4,688		$	(14,503	)	$	24,378

See accompanying Notes to Consolidated Financial Statements.

LTX-CREDENCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands, except per share data)


	Six Months Ended January 31,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(14,596	)	$	24,380
Add (deduct) non-cash items:
Stock-based compensation		2,505			1,951
Depreciation and amortization		5,689			9,161
Restructuring		187			116
Other		(728	)		503
Changes in operating assets and liabilities:
Accounts receivable		20,966			9,688
Inventories		(6,791	)		1,525
Prepaid expenses		831			(918	)
Other assets		—			(442	)
Accounts payable		(8,810	)		(2,302	)
Accrued expenses		(8,220	)		(4,698	)
Deferred revenue		(150	)		(3,246	)

Net cash (used in) provided by operating activities		(9,117	)		35,718
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of available-for-sale securities		18,426			4,993
Proceeds from sales and maturities of held-to-maturity securities		5,750			3,200
Purchases of available-for-sale securities		(80,966	)		(13,726	)
Purchases of held-to-maturity securities		(7,885	)		(11,089	)
Purchases of property and equipment		(1,826	)		(2,991	)

Net cash used in investing activities		(66,501	)		(19,613	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock		(6,077	)		—
Payments of tax withholdings for vested RSUs, net of proceeds from stock option exercises		(1,044	)		(775	)
Proceeds from shares issued from employees’ stock purchase plan		397			320

Net cash used in financing activities		(6,724	)		(455	)
Effect of exchange rate changes on cash and cash equivalents		(423	)		192

Net (decrease) increase in cash and cash equivalents		(82,765	)		15,842
Cash and cash equivalents at beginning of period		123,198			74,978

Cash and cash equivalents at end of period	$	40,433		$	90,820

See accompanying Notes to Consolidated Financial Statements.

LTX-CREDENCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. THE COMPANY

LTX-Credence Corporation (“LTX-Credence” or the “Company”) provides market focused cost-optimized, automated test equipment (ATE) solutions. The Company designs, manufactures, markets and services ATE solutions that address the broad, divergent test requirements of the wireless, computing, automotive and digital consumer market segments. Semiconductor designers and manufacturers worldwide use its equipment to test their devices during the manufacturing process. After testing, these devices are then incorporated in a wide range of products, including computers, mobile internet equipment such as wireless access points and interfaces, broadband access products such as cable modems and set top boxes, personal communication products such as mobile phones and personal digital music players, consumer products such as televisions, videogame systems, digital cameras and automobile electronics, and for power management in portable and automotive electronics. The Company also sells hardware and software support and maintenance services for its test systems. The Company is headquartered and has a development facility in Norwood, Massachusetts, development facilities in Milpitas, California and Beaverton, Oregon, and sales and service facilities located across the world to support its customer base.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared pursuant to the Rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and, accordingly, these footnotes condense or omit information and disclosures which substantially duplicate information provided in our latest audited financial statements. These unaudited financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended July 31, 2011. In the opinion of management, these unaudited consolidated financial statements reflect all adjustments, including normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. The operating results for the three or six months ended January 31, 2012 are not necessarily indicative of future trends or the Company’s results of operations for the entire fiscal year ending July 31, 2012.

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

Foreign Currency Remeasurement

The financial statements of the Company’s foreign subsidiaries are remeasured in accordance with Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) Topic 830, Foreign Currency Matters. The subsidiaries’ functional currency is the U.S. dollar. Accordingly, the Company’s foreign subsidiaries remeasure monetary assets and liabilities at month-end exchange rates while long-term non-monetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average rates in effect during the month. Net gains or losses resulting from foreign currency remeasurement and transaction gains or losses are included in the consolidated results of operations as a component of Other income, net, and were not significant for the three or six months ended January 31, 2012 or 2011.

Derivatives

The Company conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of the Company’s foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign denominated net monetary assets. The Company does not use derivative financial instruments for trading or speculative purposes.

During the fiscal year ended July 31, 2011, the Company entered into a derivative in the form of a foreign currency forward contract to minimize the effect of exchange rate fluctuations associated with the remeasurement of net monetary assets denominated in foreign currencies. This transaction did not qualify for hedge accounting under FASB ASC Topic 815, Derivatives and Hedging. The change in fair value of this derivative is recorded directly in the Company’s statement of operations and offsets the change in fair value of the net monetary assets denominated in foreign currencies.

The notional amount and market amount of the foreign currency forward contract was $4.6 million and $4.8 million, respectively, at July 31, 2011. During the six months ended January 31, 2012, the Company’s foreign currency forward contract expired. The following table summarizes the fair value of the derivative instrument as of July 31, 2011 and reflects the expiration of the derivative instrument as of January 31, 2012:

Derivatives not designated as hedging instruments:

Balance Sheet Location

January 31,
2012

July 31,
2011

(in thousands)

Foreign exchange contract

Other accrued expenses

—

187

Revenue Recognition

The Company recognizes revenue based on guidance provided in FASB ASC Topic 605, Revenue Recognition (“ASC 605”). The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price is fixed or determinable and collectability is reasonably assured.

Revenue related to equipment sales is recognized when: (a) the Company has a written sales agreement; (b) delivery has occurred; (c) the price is fixed or determinable; (d) collectability is reasonably assured; (e) the product delivered is standard product with historically demonstrated acceptance; and (f) there is no unique customer acceptance provision or payment tied to acceptance or an undelivered element significant to the functionality of the system. Generally, payment terms are time based after product shipment. When sales to a customer involve multiple elements, revenue is recognized on the delivered element provided that (1) the undelivered element is a proven technology, (2) there is a history of acceptance on the product with the customer, (3) the undelivered element is not essential to the customer’s application, (4) the delivered item(s) has value to the customer on a stand-alone basis, and (5) if the arrangement included a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. The arrangement consideration, or the amount of revenue to be recognized on each separate unit of accounting, is allocated at the inception of the arrangement to all deliverables on the basis of their relative selling price based on the provisions of Accounting Standards Update (“ASU”) 2009-13.

Revenue related to spare parts is recognized on shipment.

Revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts.

Engineering and Product Development Costs

The Company expenses all engineering and product development costs as incurred. Expenses subject to capitalization in accordance with the FASB ASC Topic 985, Software, relating to certain software development costs, were insignificant for the three and six months ended January 31, 2012 and 2011, respectively.

Shipping and Handling Costs

Shipping and handling costs are included in cost of sales in the consolidated statements of operations. These costs, when included in the sales price charged for products, are recognized in net sales. Shipping and handling costs were insignificant for the three and six months ended January 31, 2012 and 2011, respectively.

Income Taxes

The benefit from/provision for income taxes relates principally to operating results of foreign entities in jurisdictions primarily in Asia and Europe and the release of reserves due to statute of limitation expirations. The Company recorded an income tax benefit of $0.7 million and $0.6 million, respectively, for the three and six months ended January 31, 2012 related to the release of reserves due to statute of limitations expirations. For both the three and six months ended January 31, 2011, the Company recorded an income tax benefit of $0.1 million primarily due to foreign tax on earnings in foreign jurisdictions.

As of January 31, 2012 and July 31, 2011, the Company’s total liability for unrecognized income tax benefits was $8.6 million and $9.1 million, respectively, (of which $4.9 million and $5.3 million, if recognized, would impact the Company’s income tax rate and are recorded in other long-term liabilities on the Company’s consolidated balance sheet). The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of January 31, 2012 and July 31, 2011, the Company had accrued approximately $1.1 million and $1.3 million, respectively, for potential payment of accrued interest and penalties.

The Company conducts business globally and, as a result, the Company and its subsidiaries or branches file income tax returns in the U.S. federal jurisdiction and various U.S. state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Singapore, France and Germany. With few exceptions, the Company is no longer subject to U.S. federal, state, local or non-U.S. income tax examinations for years before 2000.

As a result of completion of the merger with Credence Systems Corporation (“Credence”) on August 29, 2008, a greater than 50% cumulative ownership change in both entities triggered a significant limitation in net operating loss carryforward utilization. The Company’s ability to use operating and acquired net operating loss and credit carryforwards is subject to annual limitation as defined in sections 382 and 383 of the Internal Revenue Code. The Company currently estimates that the annual limitation on its use of net operating losses generated through August 29, 2008 will be approximately $10.1 million which, based on currently enacted federal carryforward periods, limits the amount of net operating losses able to be used to approximately $202.0 million. The Company will continue to assess the realizability of these carryforwards in subsequent periods.

Accounting for Stock-Based Compensation

The Company has various stock-based compensation plans, including the Company’s 2010 Stock Plan, as amended on November 26, 2010 (“2010 Plan”), the Company’s 2004 Stock Plan, the Company’s 2001 Stock Plan, the Company’s 1999 Stock Plan, and the Company’s 1993 Stock Plan. In addition, the Company assumed the StepTech, Inc. Stock Option Plan as part of its acquisition of StepTech, Inc. (“StepTech”) and the Credence 2005 Stock Incentive Plan in connection with its acquisition of Credence. The Company can only grant new awards under the 2010 Plan.

The Company recognizes stock-based compensation expense on its equity awards in accordance with the provisions of FASB ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). Under ASC 718, the Company is required to recognize as expense the estimated fair value of all share-based payments to employees. In accordance with this standard, the Company has elected to recognize the compensation cost of all service based awards on a straight-line basis over the vesting period of the award. The Company recorded stock-based compensation expense of approximately $1.2 million and $2.5 million for the three and six months ended January 31, 2012, respectively, and $1.0 million and $2.0 million, respectively, for the three and six months ended January 31, 2011, in connection with its share-based payments.

The Company granted 737,100 restricted stock unit awards during the three months ended October 31, 2011, all of which are service-based and have four year vesting terms.

The Company granted 72,000 restricted stock unit awards during the three months ended January 31, 2012, all of which are service-based and vest in one year.

Product Warranty Costs

The Company’s products are sold with warranty provisions that require it to remedy deficiencies in quality or performance of products over a specified period of time at no cost to its customers. The Company generally offers a warranty for all of its products, the standard terms and conditions of which are based on the product sold and the customer. For all testers sold, the Company accrues a liability for the estimated cost of standard warranty at the time of tester shipment and defers the portion of product revenue attributed to the estimated selling price of non-standard warranty. Costs for non-standard warranties are expensed as incurred. Factors that impact the expected product warranty liability include the number of installed testers, historical and anticipated product failure rates, material usage and service labor costs. The Company periodically assesses the adequacy of its recorded product warranty liability and adjusts it as necessary.

The following table shows the change in the product warranty liability, as required by FASB ASC Topic 460, Guarantees, for the six months ended January 31, 2012 and 2011:


	Six Months Ended January 31,
Product Warranty Activity	2012			2011
	(in thousands)
Balance at beginning of period	$	2,281		$	4,398
Warranty expenditures for current period		(1,783	)		(5,122	)
Changes in liability related to pre-existing warranties		20			(126	)
Provision for warranty costs in the period		887			3,628

Balance at end of period	$	1,405		$	2,778

Net income (loss) per share

Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive stock options and restricted stock units and is computed by dividing net income (loss) by the weighted average number of common shares and the dilutive effect of all securities outstanding. Reconciliation between basic and diluted earnings per share is as follows:


	Three Months Ended January 31,					Six Months Ended January 31,
	2012			2011		2012			2011
	(in thousands, except per share data)
Net income (loss)	$	(9,688	)	$	4,705	$	(14,596	)	$	24,380
Basic EPS:
Weighted average shares outstanding		48,961			49,384		49,225			49,279
Basic EPS	$	(0.20	)	$	0.10	$	(0.30	)	$	0.49
Diluted EPS:
Weighted average shares outstanding		48,961			49,384		49,225			49,279
Plus: impact of stock options and unvested restricted stock units		—			658		—			815

Weighted average common and common equivalents shares outstanding		48,961			50,042		49,225			50,094
Diluted EPS	$	(0.20	)	$	0.09	$	(0.30	)	$	0.49

For the three and six months ended January 31, 2012 and 2011 stock options to purchase approximately 1,357,235 shares and 1,588,128 shares, respectively, of common stock were not included in the calculation of diluted net income (loss) per share because their inclusion would have been anti-dilutive. These options could be dilutive in the future. The calculation of diluted net loss per share also excludes 1,847,293 and 1,666,069 restricted stock units for the period ended January 31, 2012 and 2011, respectively, in accordance with the contingently issuable shares guidance of FASB ASC Topic 260, Earnings Per Share. The calculation of diluted net income per share for the three months ended January 31, 2011 also excludes the impact of conversion features of the Company’s Convertible Subordinated Notes that matured in May 2011 as to include them would have been anti-dilutive.

Cash and Cash Equivalents and Marketable Securities

The Company considers all highly liquid investments that are readily convertible to cash and that have original maturity dates of three months or less to be cash equivalents. Cash and cash equivalents consist primarily of operating cash and money market accounts. Marketable securities consist primarily of debt securities that are classified as available-for-sale and held-to-maturity, in accordance with FASB ASC Topic 320, Investments – Debt and Equity Securities. The Company also holds certain investments in commercial paper that it considers to be held to maturity, based on their maturity dates. Securities available for sale include corporate and governmental obligations with various contractual maturity dates some of which are greater than one year. The Company considers the securities to be liquid and convertible to cash within 30 days. The Company has the ability and intent to liquidate any security that the Company holds to fund operations over the next twelve months if necessary and as such has classified these securities as short-term. Governmental obligations include U.S. Government, State, Municipal and Federal Agency securities. The Company has an overnight sweep investment arrangement with its bank for certain accounts to allow the Company to enter into diversified overnight investments via a money market mutual fund which generally provides a higher investment yield than a regular operating account.

Gross unrealized gains and losses for the three and six months ended January 31, 2012 and 2011 were not significant. Unrealized gains and losses are reflected as a separate component of comprehensive income and are included in Stockholders’ Equity. Realized gains, losses and interest are included in investment income in the Statements of Operations. The Company analyzes its securities portfolio for impairment on a quarterly basis or upon occurrence of a significant change in circumstances. There were no other-than-temporary impairment losses recorded in the three and six months ended January 31, 2012 or 2011.

Inventories

Inventories are stated at the lower of cost or market, determined on the first-in, first-out (“FIFO”) method, and include materials, labor and manufacturing overhead. The components of inventories are as follows:


	January 31, 2012		July 31, 2011
	(in thousands)
Purchased components and parts	$	13,604	$	11,313
Units-in-progress		6,229		2,080
Finished units		8,616		7,752

Total inventories	$	28,449	$	21,145

The Company establishes inventory reserves when conditions exist that indicate inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand for the Company’s products or market conditions. The Company regularly evaluates the ability to realize the value of inventory based on a combination of factors including the following: forecasted sales or usage, estimated product end of life dates, estimated current and future market value and new product introductions.

Purchasing and usage alternatives are also explored to mitigate inventory exposure. When recorded, reserves are intended to reduce the carrying value of inventory to its net realizable value. As of January 31, 2012 and July 31, 2011, inventory is stated net of inventory reserves of $42.3 million and $43.0 million, respectively. If actual demand for products deteriorates or market conditions are less favorable than projected, additional inventory reserves may be required. Such reserves are not reversed until the related inventory is sold or otherwise disposed of. The Company had sales of $1.1 million and $5.3 million of previously reserved inventory for the three months and six months ended January 31, 2012, which represents the gross cash received from the customer. The Company released reserves of $0.2 million and $1.2 million for the three months and six months ended January 31, 2012, related to these sales. The Company had sales of $2.4 million and $4.9 million of previously reserved inventory for the three months and six months ended January 31, 2011, which represents the gross cash received from the customer. The Company released reserves of $1.1 million and $1.4 million for the three months and six months ended January 31, 2011, related to these sales.

Property and Equipment

Property and equipment acquired is recorded at cost. Property and equipment related to the Credence merger was recorded at fair value on the date of acquisition. The Company provides for depreciation and amortization on the straight-line method. Charges are made to operating expenses in amounts that are sufficient to amortize the cost of the assets over their estimated useful lives. Equipment spares used for service and internally manufactured test systems used for testing components and engineering projects are recorded at cost and depreciated over 3 to 7 years. Repair and maintenance costs that do not extend the lives of property and equipment are expensed as incurred. Property and equipment are summarized as follows:


	(in thousands)						(in years)
	January 31, 2012			July 31, 2011			Estimated Useful Lives
Equipment spares	$	55,528		$	65,078		5 or 7
Machinery, equipment and internally manufactured systems		42,882			41,476		3-7
Office furniture and equipment		4,745			4,892		3-7
Purchased software		2,861			2,805		3
Land		2,524			2,524		—
Leasehold improvements		6,196			6,134		Term of lease or useful life, not to exceed 10 years

Property and equipment, gross		114,736			122,909
Less: accumulated depreciation and amortization		(95,534	)		(102,082	)

Property and equipment, net	$	19,202		$	20,827

Impairment of Long-Lived Assets Other Than Goodwill

On an on-going basis, management reviews the value and period of amortization or depreciation of long-lived assets. In accordance with FASB ASC Topic 360, Property, Plant and Equipment, the Company reviews whether impairment losses exist on long-lived assets when indicators of impairment are present. During this review, the Company re-evaluates the significant assumptions used in determining the original cost of long-lived assets. Although the assumptions may vary, they generally include revenue growth, operating results, cash flows and other indicators of value. Management then determines whether there has been a permanent impairment of the value of long-lived assets based upon events or circumstances that have occurred since acquisition. The extent of the impairment amount recognized is based upon a determination of the impaired asset’s fair value. As of January 31, 2012 and July 31, 2011 there were no indicators that required the Company to conduct a recoverability test at that date.

Goodwill and Other Intangibles

In accordance with FASB ASC Topic 350, Intangibles – Goodwill and Other, (“ASC 350”), the Company is required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. The Company has determined its entire business represents one reporting unit. Historically, the Company has performed its annual impairment analysis during the fourth quarter of each year. The provisions of ASC 350 require that a two-step impairment test be performed for goodwill. In the first step, the Company compares the implied fair value of each reporting unit to which goodwill has been allocated to its carrying value. If the implied fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the implied fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference. As of January 31, 2012 and July 31, 2011, the implied fair value of the goodwill of the Company’s reporting unit exceeded the Company’s carrying value of its net assets and therefore no impairment existed as of those dates.

Determining the fair value of a reporting unit requires the Company to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. The Company bases its fair value estimates on assumptions it believes to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

The Company’s goodwill consists of the following:


Goodwill	January 31, 2012		July 31, 2011
	(in thousands)
Credence (August 29, 2008)	$	28,662	$	28,662
Step Tech (June 10, 2003)		14,368		14,368

Total goodwill	$	43,030	$	43,030

There was no change in the goodwill balance for the three and six months ended January 31, 2012 or 2011.

Intangible assets, all of which relate to the Credence merger, consist of the following:


			As of January 31, 2012
Description	Estimated Useful Life		Gross Carrying Amount		Accumulated Amortization		Net Amount
	(in years)		(in thousands)		(in thousands)		(in thousands)
Trade names		2.0	$	300	$	300	$	—
Distributor relationships		2.0		2,800		2,800		—
Key customer relationships		3.0		8,500		8,500		—
Developed technology—ASL		6.0		16,000		13,955		2,045
Developed technology—Diamond		9.0		9,400		7,931		1,469
Maintenance agreements		7.0		1,900		679		1,221

Total intangible assets			$	38,900	$	34,165	$	4,735


			As of July 31, 2011
Description	Estimated Useful Life		Gross Carrying Amount		Accumulated Amortization		Net Amount
	(in years)		(in thousands)		(in thousands)		(in thousands)
Trade names		2.0	$	300	$	300	$	—
Distributor relationships		2.0		2,800		2,800		—
Key customer relationships		3.0		8,500		8,500		—
Developed technology—ASL		6.0		16,000		12,945		3,055
Developed technology—Diamond		9.0		9,400		7,495		1,905
Maintenance agreements		7.0		1,900		543		1,357

Total intangible assets			$	38,900	$	32,583	$	6,317

Intangible assets are amortized based upon the pattern of estimated economic use over their estimated useful lives. The weighted average estimated remaining useful life over which these intangible assets will be amortized is 2.5 years.

The Company expects amortization for these intangible assets to be:


For the fiscal year ending July 31,	Amount
	(in thousands)
Remainder of 2012	$	1,581
2013		1,583
2014		769
2015		396
Thereafter		406

Total	$	4,735

3. SEGMENT REPORTING

In accordance with the provisions of FASB ASC Topic 280, Segment Reporting , the Company operates as one reporting segment, that is, the design, manufacture and marketing of automated test equipment for the semiconductor industry that is used to test system-on-a-chip, digital, analog and mixed signal integrated circuits.

The Company’s net sales by geographic area for the three and six months ended January 31, 2012 and 2011, along with the long-lived assets at January 31, 2012 and July 31, 2011, are summarized as follows:


	Three Months Ended January 31,				Six Months Ended January 31,
	2012		2011		2012		2011
	(in thousands)
Net sales:
United States	$	7,113	$	8,630	$	16,519	$	20,474
Taiwan		1,312		6,925		7,766		29,373
Philippines		4,628		23,837		8,656		39,399
Germany		2,024		1,093		4,920		2,751
Hong Kong		2,267		—		3,011		1,481
Singapore		1,130		2,610		3,549		9,933
Malaysia		1,069		2,554		2,806		6,235
All other countries		4,539		6,900		10,607		18,550

Total Net Sales	$	24,082	$	52,549	$	57,834	$	128,196

Long-lived assets consist of property and equipment:


	January 31, 2012		July 31, 2011
	(in thousands)
Long-lived assets:
United States	$	17,519	$	18,820
Singapore		438		559
Philippines		282		371
All other countries		963		1,077

Total long-lived assets	$	19,202	$	20,827

Transfer prices on products sold to foreign subsidiaries are intended to produce profit margins that correspond to the subsidiary’s sales and support efforts.

4. RESTRUCTURING

In the year ended July 31, 2009, the Company vacated certain facilities in an effort to consolidate operations and align the Company’s capacity after the merger with Credence. As of January 31, 2012 and 2011, the accrual for the previously restructured facility leases includes $2.9 million and $3.9 million, respectively, of long-term payments to be made for the remainder of the respective lease terms, the longest of which is through 2017. This liability is included in other long term liabilities on the Company’s consolidated balance sheets. The remainder of the accrual of $1.3 million and $1.3 million, respectively, is included in other accrued expenses on the Company’s consolidated balance sheets for each period presented.

During the three months ending January 31, 2012, the Company exercised an early termination clause in one of its North American facility leases and vacated the facility. Consequently, the Company recorded a liability for severance costs for headcount reductions, as well as for its remaining obligation under the lease, including a termination fee for triggering the early termination clause. The total restructuring expense recorded related to this action was $0.1 million.

During the quarter ending October 31, 2011, the Company extended the sublease assumptions for its previously restructured facilities which increased the accrued restructuring liability by $0.1 million.

The cash paid for the six months ended January 31, 2012 and 2011 represents lease payments for the Company’s previously restructured facilities, offset by sublease income from subleases.

The following table sets forth the Company’s restructuring accrual activity for the six months ended January 31, 2012 and January 31, 2011 (in thousands):


	Severance Costs			Facility Leases			Total
Balance July 31, 2011	$	6		$	4,761		$	4,767
Additions to expense		107			80			187
Accretion		—			82			82
Cash paid		(6	)		(749	)		(755	)

Balance January 31, 2012	$	107		$	4,174		$	4,281


	Severance Costs			Facility Leases			Total
Balance July 31, 2010	$	84		$	5,810		$	5,894
Additions to expense		—			116			116
Accretion		—			46			46
Cash paid		(14	)		(800	)		(814	)

Balance January 31, 2011	$	70		$	5,172		$	5,242

5. COMMITMENTS AND CONTINGENCIES

The Company is subject to various legal proceedings, claims and litigation which arise in the ordinary course of operations. In the opinion of management, the amount of liability, if any, with respect to these actions would not materially affect the Company’s financial position, results of operations or cash flows.

In the ordinary course of business, the Company agrees from time to time to indemnify certain customers against certain third party claims for property damage, bodily injury, personal injury or intellectual property infringement arising from the operation or use of the Company’s products. Also, from time to time in agreements with suppliers, licensors and other business partners, the Company agrees to indemnify these partners against certain liabilities arising out of the sale or use of the Company’s products. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations in the aggregate is theoretically unlimited; however, the Company has general and umbrella insurance policies that enable it to recover a portion of any amounts paid and many of its agreements contain a limit on the maximum amount, as well as limits on the types of damages recoverable. Based on the Company’s experience with such indemnification claims, it believes the estimated fair value of these obligations is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of January 31, 2012 or July 31, 2011.

Subject to certain limitations, the Company indemnifies its current and former officers and directors in certain circumstances in connection with their services as directors and officers of the Company. Although the maximum potential amount of future payments the Company could be required to make under these agreements is theoretically unlimited, as there were no known or pending claims, the Company has not accrued a liability for these agreements as of January 31, 2012 or July 31, 2011.

The Company had approximately $18.7 million and $9.6 million, respectively, of non-cancelable inventory commitments with outsourced suppliers as of January 31, 2012 and July 31, 2011. The Company expects to consume the inventory through normal operating activity.

The Company has operating lease commitments for certain facilities and equipment. Minimum lease payments under non-cancelable leases at January 31, 2012, are as follows:

Lease Commitments:


For the fiscal year ending July 31,	Amount
	(in thousands)
Remainder of 2012	$	2,678
2013		4,898
2014		4,556
2015		4,054
2016		3,802
Thereafter		6,409

Total minimum lease payments	$	26,397

6. ACCRUED EXPENSES

Other accrued expenses consisted of the following at January 31, 2012 and July 31, 2011:


	(in thousands)
	January 31, 2012		July 31, 2011
Accrued compensation	$	6,723	$	10,340
Warranty reserve		1,405		2,281
Accrued restructuring		1,336		1,350
Accrued income, VAT and local taxes		955		1,274
Accrued professional fees		693		964
Accrued vendor liability		288		2,442
Other accrued expenses		5,704		6,026

Total accrued expenses	$	17,104	$	24,677

7. FAIR VALUE MEASUREMENTS

The Company determines its fair value measurements for assets and liabilities based upon the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures.

The Company holds short-term money market investments and certain other financial instruments which are carried at fair value. The Company determines fair value based upon quoted prices, when available or through the use of alternative approaches when market quotes are not readily accessible or available.

Valuation techniques for fair value are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s best estimate, considering all relevant information. These valuation techniques involve some level of management estimation and judgment. The valuation process to determine fair value also includes making appropriate adjustments to the valuation model outputs to consider risk factors.

The fair value hierarchy of the Company’s inputs used in the determination of fair value for assets and liabilities during the current period consists of three levels. Level 1 inputs are composed of unadjusted, quoted prices in active markets for identical assets

or liabilities at the measurement date. Level 2 inputs include quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 inputs incorporate the Company’s own best estimate of what market participants would use in pricing the asset or liability at the measurement date where consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. If inputs used to measure an asset or liability fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the asset or liability. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following table presents financial assets and liabilities measured at fair value and their related valuation inputs as of January 31, 2012 and as of July 31, 2011:

		000000000000		000000000000		000000000000		000000000000
			Fair Value Measurements at Reporting Date Using (in thousands)
January 31, 2012	Total Fair Value of Asset or Liability		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents (1)	$	40,433	$	39,510	$	923	$	—
Marketable securities (2)		97,173		8,639		88,534		—

Total Assets	$	137,606	$	48,149	$	89,457	$	—

		000000000000		000000000000		000000000000		000000000000
July 31, 2011	Total Fair Value of Asset or Liability		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents (1)	$	123,198	$	122,698	$	500	$	—
Marketable securities (2)		35,419		10,031		25,388		—

Total Assets	$	158,617	$	132,729	$	25,888	$	—

Accrued expenses (Foreign exchange contract (3)	$	187	$	—	$	187	$	—

Total Liabilities	$	187	$	—	$	187	$	—

(1)	Cash and cash equivalents as of January 31, 2012 and July 31, 2011 includes cash held in operating accounts of approximately $35.7 million and $10.9 million, respectively, that are not subject to fair value measurements. For purposes of this disclosure they are included as having Level 1 inputs.

(2)	Marketable securities as of January 31, 2012 and July 31, 2011 exclude approximately $6.1 million and $4.0 million, respectively, of commercial paper which is held to maturity and not subject to fair value measurements.

(3)	Accrued expenses as of July 31, 2011 include a derivative not designated as a hedging arrangement related to a foreign exchange contract of approximately $0.2 million.

The carrying value of accounts receivable, prepaid expenses and accounts payable approximates fair value due to their short-term nature.

There were no assets or liabilities measured at fair value on a non-recurring basis requiring valuation disclosures as of January 31, 2012 or as of July 31, 2011.

8. STOCKHOLDERS’ EQUITY

Stock Repurchases

On September 15, 2011, the Company announced that its Board of Directors had authorized a stock repurchase program for up to $25 million worth of shares of the Company’s common stock. Under this program, the Company is authorized to repurchase shares of its common stock from time to time in open market transactions. The Company will determine the timing and amount of the transactions based on its evaluation of market conditions and other factors. The repurchase program may be suspended or discontinued at any time and has no expiration date. During the three and six months ended January 31, 2012, the Company repurchased 226,710 shares for $1.2 million and 1,121,600 shares for $6.1 million, respectively.

2010 Plan

On November 5, 2010, the Company’s Board of Directors adopted, subject to shareholder approval, the Company’s 2010 Stock Plan, and subsequently amended it on November 26, 2010 (“2010 Plan”). Under the terms of the 2010 Plan, the Company may issue up to 4,800,000 shares of the Company’s common stock (subject to adjustment in the event of stock splits and other similar events) pursuant to awards granted under the 2010 Plan. In addition, any unissued shares of the Company’s common stock, and any unused shares of the Company’s common stock as a result of termination, surrender, cancellation or forfeiture of outstanding awards under the Credence 2005 Plan, as amended and restated, and the LTX Corporation 2004 Plan, (together the “Prior Plans”), will be available for grant under the 2010 Plan. The 2010 Plan was approved by the Company’s shareholders at the annual meeting on December 7, 2010. All future grants of equity awards will be made out of the 2010 Plan, and no additional grants will be made under the Prior Plans.

Reverse Stock Split

On September 15, 2010, the Company’s Board of Directors approved a one-for-three reverse stock split of the Company’s common stock, pursuant to a previously obtained stockholders authorization. The Company filed Restated Articles of Organization on September 30, 2010 in order to effect the reverse stock split, and on a post-split basis, to set the number of authorized shares of its common stock at 150,000,000. The Restated Articles of Organization were approved by the Company’s stockholders at the Special Meeting of Stockholders held on July 8, 2010.

Upon the effective time of the Restated Articles of Organization, each outstanding share of the Company’s common stock was automatically converted into one-third of a share of common stock. No fractional shares were issued in connection with the reverse stock split. Holders of common stock who would otherwise have received a fractional share of common stock pursuant to the reverse stock split received cash in lieu of the fractional share. The reverse stock split became effective for trading purposes at the opening of the Nasdaq Global Market on October 1, 2010. The effect of the reverse stock split has been retroactively applied to all periods presented.

9. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement. This ASU clarifies the concepts related to highest and best use and valuation premise, blockage factors and other premiums and discounts, the fair value measurement of financial instruments held in a portfolio and of those instruments classified as a component of shareholders’ equity. The guidance includes enhanced disclosure requirements about recurring Level 3 fair value measurements, the use of nonfinancial assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair value. The provisions of this ASU are effective prospectively for interim and annual periods beginning on or after December 15, 2011. Early application is prohibited. This ASU requires changes in presentation only and the Company is currently assessing if it will have a material impact on its consolidated financial statements.

In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. This revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company is currently evaluating the impact of adoption of this revised standard on its financial statements.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read together with the Consolidated Financial Statements and Notes thereto appearing elsewhere in Part I. Item 1 in this quarterly report on Form 10-Q. Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. The forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Factors that might cause such a difference include, among other things, those set forth under “Risk Factors” in the Company’s Annual Report filed on Form 10-K with the SEC on October 14, 2011 and those appearing elsewhere in this quarterly report on Form 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s estimates and analysis only as of the date hereof. We assume no obligations to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.

Overview

We provide market focused cost-optimized, automated test equipment (ATE) solutions. We design, manufacture, market and service ATE solutions that address the broad, divergent test requirements of the wireless, computing, automotive and digital consumer market segments. Semiconductor designers and manufacturers worldwide use our equipment to test their devices during the manufacturing process. After testing, these devices are then incorporated in a wide range of products, including computers, mobile internet equipment such as wireless access points and interfaces, broadband access products such as cable modems and set top boxes, personal communication products such as mobile phones and personal digital music players, consumer products such as televisions, videogame systems, digital cameras and automobile electronics, and for power management in portable and automotive electronics. We also sell hardware and software support and maintenance services for our test systems.

We focus our marketing and sales efforts on integrated device manufacturers, (IDMs), outsource assembly and test providers, (OSATs), which perform manufacturing services for the semiconductor industry; and fabless companies, which design integrated circuits but have no manufacturing capability. We offer our customers a comprehensive portfolio of test systems and provide a global network of strategically deployed applications and support resources.

Industry Conditions and Outlook

We sell capital equipment and services to companies that design, manufacture, assemble or test semiconductor devices. The semiconductor industry is highly cyclical, causing in turn a cyclical impact on our financial results. As a capital equipment provider, our revenue is driven by the capital expenditure budgets and spending patterns of our customers, who often delay or accelerate purchases in reaction to variations in their business. The level of capital expenditures by these semiconductor companies depends on the current and anticipated market demand for semiconductor devices and the products that incorporate them. Therefore, demand for our semiconductor test equipment is dependent on growth in the semiconductor industry. In particular, three primary characteristics of the semiconductor industry drive the demand for semiconductor test equipment:

•

increases in unit production of semiconductor devices;

•

increases in the complexity of semiconductor devices used in electronic products; and

•

the emergence of next generation device technologies.

On March 20, 2012 we expect to launch a new test product that we believe will enable us to target the digitally-centric application specific standard product (or ASSP) device market that previously had not been a focus of ours. We believe our new test product for digitally-centric ASSP devices, which are primarily used in mobility applications, will be a new source of revenue growth for us as we enter the next semiconductor cycle.

The following graph shows the cyclicality in semiconductor test equipment orders and shipments from fiscal 1997 through fiscal 2011 (using the three month moving average), as calculated by SEMI, an industry trade organization:

LOGO

Consistent with our business strategy, we invest significant amounts in engineering and product development to design and enhance our tester platforms throughout the semiconductor business cycle. During periods of industry weakness, we implement cost reduction measures, such as the strict oversight and reduction in discretionary travel and other variable overhead expenses. We believe that these reductions in operating costs preserve our ability to fund critical product research and development efforts and continue to

provide our customers with the levels of responsiveness and service they require. For the three and six months ended January 31, 2012 engineering and product development expense was $12.4 million or 51.3% of net sales and $25.3 million or 43.7% of net sales as compared to $12.9 million or 24.5% of net sales and $25.9 million or 20.2% of net sales for the three and six months ended January 31, 2011.

We believe that our competitive advantage in the semiconductor test industry is primarily driven by the ability of our combined tester platforms to meet or exceed the cost and technical specifications required for the testing of advanced semiconductor devices. Our current investment in engineering and product development is focused on enhancements and additions to our product offerings with new options and instruments designed for specific market segments. We believe this will continue to differentiate our tester platforms from the product offerings of our competitors.

We have transitioned the manufacture of certain components and subassemblies to contract manufacturers, thereby reducing our fixed manufacturing costs associated with direct labor and overhead. We believe that transforming product manufacturing costs into variable costs allows us to improve our performance in the highly cyclical semiconductor equipment industry.

We are also exposed to the risks associated with the volatility of the U.S. and global economies. The lack of visibility regarding whether or when there will be sustained growth periods for the sale of electronic goods and information technology equipment, and uncertainty regarding the amount of sales, underscores the need for caution in predicting growth in the semiconductor test equipment industry in general and in our revenues and profits specifically. Slow or negative growth in the U.S. and global economies may materially and adversely affect our business, financial condition and results of operations for the foreseeable future. Our results of operations would be further adversely affected if we were to experience lower than anticipated order levels, cancellations of orders in backlog, extended customer delivery requirements or pricing pressure as a result of a slowdown. At lower levels of revenue, there is a higher likelihood that these types of changes in our customers’ requirements would adversely affect our results of operations because in any particular quarter a limited number of transactions accounts for an even greater portion of sales for the quarter.

Critical Accounting Policies and the Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical experience and evaluate them on an on-going basis to ensure they remain reasonable under current conditions. Actual results could differ from those estimates. We believe that our most critical accounting policies upon which our financial reporting depends and which involve the most complex and subjective decisions or assessments are as follows: revenue recognition, inventory reserves, income taxes, warranty, goodwill and other intangibles, impairment of long-lived assets and allowances for doubtful accounts.

A summary of those accounting policies and estimates that we believe to be most critical to fully understand and evaluate our financial results is set forth below. The summary should be read in conjunction with our Consolidated Financial Statements and related disclosures in Part I, Item 1 and elsewhere in this Form 10-Q.

Revenue Recognition

Our revenue recognition policy is described in Note 2, Summary of Significant Accounting Policies, contained in the Notes to Consolidated Financial Statements included in this report. We recognize revenue when persuasive evidence of an arrangement exists, delivery or customer acceptance (if required) has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

Inventory

We sell capital equipment to companies that design, manufacture, assemble, and test semiconductor devices. We are exposed to a number of economic and industry factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage. These factors include, but are not limited to, changes in our customers’ capital expenditures, technological changes in our markets, our ability to meet changing customer requirements, competitive pressures in products and prices, and the availability of key components from our suppliers. Our policy is to establish inventory reserves when conditions exist that suggest our inventory may be in excess of anticipated demand or is obsolete based upon our assumptions about future demand for our products or market conditions. We regularly evaluate the ability to realize the value of our inventory based on a combination of factors including the following: historical usage rates, forecasted sales or usage, estimated product end of life dates, estimated current and future market values and new product introductions. Purchasing and alternative usage options are also explored to mitigate inventory exposure. When recorded, our reserves are intended to reduce the carrying value of our inventory to its net realizable value. Such reserves are not reversed until the related inventory is sold or otherwise disposed.

For the three months and six months ended January 31, 2012 we recorded sales of $1.1 million and $5.3 million of previously reserved inventory, which represents gross cash received from the customer. We released reserves of $0.2 million and $1.2 million for the three months and six months ended January 31, 2012, related to these sales.

For the three months and six months ended January 31, 2011 we recorded sales of $2.4 million and $4.9 million of previously reserved inventory, which represents gross cash received from the customer. We released reserves of $1.1 million and $1.4 million for the three months and six months ended January 31, 2011, related to these sales.

As of January 31, 2012 and July 31, 2011, our inventory of $28.4 million and $21.1 million, respectively, is stated net of inventory reserves of $42.3 million and $43.0 million, respectively, and primarily consists of Sapphire, X-Series, ASL, and Diamond products.

Income Taxes

In accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”), we recognize deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated using enacted tax rates for the year in which the differences are expected to be reflected in the tax return. We established valuation allowances when necessary to reduce deferred taxes to the amount we expect to be realized.

We have deferred tax assets resulting from tax credit carryforwards, net operating losses and other deductible temporary differences, which will reduce taxable income in future periods. ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which it operates the length of carryback and carryforward periods, existing sales backlog and future sales projections. Where there are cumulative losses in recent years, ASC 740 creates a strong presumption that a valuation allowance is needed. This presumption can be overcome in very limited circumstances. As a result of our cumulative loss position in recent years and the increased uncertainty relative to the timing of profitability in future periods, we continue to maintain a valuation allowance for our entire net deferred tax assets. The valuation allowance totaled $194.5 million and $223.4 million as of July 31, 2011 and July 31, 2010, respectively, a decrease of $28.9 million. The decrease in our valuation allowance compared to the prior year was primarily due to (i) a decrease in deferred tax assets associated with state net operating loss and credit carryforwards that are subject to annual limitations as defined in sections 382 and 383 of the Internal Revenue Code (IRC) and (ii) a decrease in deferred tax assets associated with an accounting method change for spares.

We expect to record a full valuation allowance on future tax benefits until we can sustain an appropriate level of profitability. Until such time, we would not expect to recognize any significant tax benefits in our future results of operations. We will continue to monitor the recoverability of our deferred tax assets on a periodic basis. As a result of the merger and IRC Section 382 guidance, the future utilization of our net operating loss deductions will be significantly limited.

Valuation of Goodwill

In accordance with FASB ASC Topic 350, Intangibles—Goodwill and Other, (“ASC 350”), we are required to review goodwill by reporting unit for impairment at least annually or more often if there are indicators of impairment present. We have determined our entire business represents one reporting unit. Historically, we have performed our annual impairment analysis during the fourth quarter of each year. The provisions of ASC 350 require that a two-step impairment test be performed for goodwill. In the first step, we compare the fair value of each reporting unit to which goodwill has been allocated to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is considered not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference. As of January 31, 2012 and July 31, 2011 the fair value of our reporting unit exceeded the carrying value of the reporting unit’s net assets and therefore no impairment exists as of those dates.

Determining the fair value of a reporting unit, if applicable, requires us to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

Valuation of Identifiable Intangible Assets

Our identifiable intangible assets include existing technology, customer relationships and trade names. Our existing technology relates to patents, patent applications and know-how with respect to the technologies embedded in our currently marketed products.

We primarily used the income approach to value our existing technology and other intangibles. This approach calculates fair value by estimating future cash flows attributable to each intangible asset and discounting it to present value at a risk-adjusted discount rate.

In estimating the useful life of acquired assets, we considered paragraph 11 of ASC 350, which lists the pertinent factors to be considered when estimating the useful life of an intangible asset. These factors included a review of the expected use by the combined company of the assets acquired, the expected useful life of another asset (or group of assets) related to the acquired assets, legal, regulatory or other contractual provisions that may limit the useful life of an acquired asset or may enable the extension of the useful life of an acquired asset without substantial cost, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. We expect to amortize these intangible assets over estimated useful lives using a method that is based on estimated future cash flows as we believe this will approximate the pattern in which the economic benefits of the assets will be derived.

Impairment of Long-Lived Assets Other Than Goodwill

On an on-going basis, management reviews the value and period of amortization or depreciation of long-lived assets. In accordance with FASB ASC Topic 360, Property, Plant and Equipment, (“ASC 360”), we review whether impairment losses exist on long-lived assets when indicators of impairment are present. During this review, we reevaluate the significant assumptions used in determining the original cost of long-lived assets. Although the assumptions may vary, they generally include revenue growth, operating results, cash flows and other indicators of value. Management then determines whether there has been a permanent impairment of the value of long-lived assets based upon events or circumstances that have occurred since acquisition. The extent of the impairment amount recognized is based upon a determination of the impaired asset’s fair value. As of January 31, 2012 and July 31, 2011 there were no indicators that required us to conduct a recoverability test as of these dates.

Warranty

We provide standard warranty coverage on our systems, providing labor and parts necessary to repair the systems during the warranty period. We account for the estimated warranty cost as a charge to cost of sales when the revenue is recognized. The estimated warranty cost is based on historical product performance and field expenses. We use actual service hours and parts expense per system and apply the actual labor and overhead rates to estimate the warranty charge. The actual product performance and/or field expense profiles may differ, and in those cases we adjust the warranty accrual accordingly.

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest, and typically have a contractual maturity of ninety days or less. A majority of our trade receivables are derived from sales to large multinational semiconductor manufacturers throughout the world. The volatility of the industries that we serve can cause certain of our customers to experience shortages of cash, which can impact their ability to make required payments. In order to monitor potential credit losses, we perform ongoing credit evaluations of our customers’ financial condition. We maintain an allowance for doubtful accounts for potential credit losses based upon our assessment of the expected collectability of all accounts receivable. We review the allowance for doubtful accounts periodically to assess the adequacy of the allowances. In any circumstances in which we are aware of a customer’s inability to meet its financial obligations, we provide an allowance, which is based on the age of the receivables, the circumstances surrounding the customer’s financial situation and our historical experience. If circumstances change, and the financial condition of our customers were adversely affected resulting in their inability to meet their financial obligations to us, we may need to record additional allowances. Account balances are charged off against the allowance when it is determined the receivable will not be recovered.

Recent Accounting Pronouncements

See Note 9 to the consolidated financial statements included in this Quarterly Report on Form 10-Q, regarding the impact of certain recent accounting pronouncements on our consolidated financial statements.

Results of Operations

The following tables set forth for the periods indicated the principal items included in the Consolidated Statement of Operations in dollars and as percentages of net sales.


	Statement of Operations
	Three Months Ended January 31,						Six Months Ended January 31,
	(in thousands)
	2012			2011			2012			2011
Net sales	$	24,082		$	52,549		$	57,834		$	128,196
Cost of sales		13,202			21,126			28,917			49,527

Gross profit		10,880			31,423			28,917			78,669
Engineering and product development expenses		12,364			12,895			25,280			25,874
Selling, general and administrative expenses		8,346			12,691			17,667			25,856
Amortization of purchased intangible assets		791			1,490			1,582			2,980
Restructuring		141			—			187			116

Income (loss) from operations		(10,762	)		4,347			(15,799	)		23,843
Other income (expense):
Interest expense		(42	)		(63	)		(82	)		(145	)
Investment income		246			84			384			153
Other income		199			190			352			394

Income (loss) before provision for (benefit from) income taxes		(10,359	)		4,558			(15,145	)		24,245
Net benefit from income taxes		(671	)		(147	)		(549	)		(135	)

Net income (loss)	$	(9,688	)	$	4,705		$	(14,596	)	$	24,380


	Percentage of Net Sales
	Three Months Ended January 31,						Six Months Ended January 31,
	2012			2011			2012			2011
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		54.8			40.2			50.0			38.6

Gross profit		45.2			59.8			50.0			61.4
Engineering and product development expenses		51.3			24.5			43.7			20.2
Selling, general and administrative expenses		34.6			24.2			30.6			20.2
Amortization of purchased intangible assets		3.3			2.8			2.7			2.3
Restructuring		0.6			—			0.3			0.1

Income (loss) from operations		(44.6	)		8.3			(27.3	)		18.6
Other income (expense):
Interest expense		(0.2	)		(0.1	)		(0.1	)		(0.1	)
Investment income		1.0			0.2			0.6			0.1
Other income		0.8			0.3			0.6			0.3

Income (loss) before provision for (benefit from) income taxes		(43.0	)		8.7			(26.2	)		18.9
Net benefit from income taxes		(2.8	)		(0.3	)		(1.0	)		(0.1	)

Net income (loss)		(40.2	)%		9.0	%		(25.2	)%		19.0	%

Three and Six Months Ended January 31, 2012 Compared to the Three and Six Months Ended January 31, 2011

Net sales. Net sales consist of semiconductor test equipment, system support and maintenance services. Net sales for the three months ended January 31, 2012 decreased 54.1% to $24.1 million as compared to $52.5 million in the same quarter of the prior year. Net sales for the six months ended January 31, 2012 decreased 54.9% to $57.8 million as compared to $128.2 million for the same six month period of the prior year. The decrease in net sales in the three and six months ended January 31, 2012 as compared to the same periods in the prior year was due to continued industry-wide weakness across all market segments. There was also lower demand from certain customers whose current utilization rates on existing test equipment are below capacity which has put pressure on their capital spending. We are unable to predict when the industry demand will strengthen, and to what degree it will, however we believe the current fiscal quarter’s revenues represent the bottom of the industry cycle.

Net service sales, included in net sales, accounted for $9.1 million, or 37.6% of net sales, and $10.9 million, or 20.7% of net sales, for the three months ended January 31, 2012 and 2011, respectively, and $18.8 million or 32.6% of net sales, and $21.3 million or 16.6% of net sales for the six months ended January 31, 2012 and 2011, respectively. The decrease in service revenue was primarily the result of increased reliability of our products and a lower cost product which reduces the demand for service because customers are more apt to replace legacy product than contract for service.

Geographically, sales to customers outside of the United States were 70.5% and 84.0% of net sales for the three months ended January 31, 2012 and 2011, respectively, and 71.4% and 84.0% of net sales for the six months ended January 31, 2012 and 2011, respectively.

Gross profit. Gross profit was $10.9 million or 45.2% of net sales in the three months ended January 31, 2012, as compared to $31.4 million or 59.8% of net sales in the same quarter of the prior year. For the six months ended January 31, 2012, the gross profit was $28.9 million or 50.0% of net sales as compared to $78.7 million or 61.4% of net sales for the six months ended January 31, 2011. The decrease in gross profit for the three and six months ended January 31, 2012 as compared to January 31, 2011 was in line with our target gross margin model at this revenue level, and was primarily driven by the approximately 54% reduction in revenue for all periods presented, partially offset by lower variable costs.

Engineering and product development expenses. Engineering and product development expenses were $12.4 million, or 51.3% of net sales, in the three months ended January 31, 2012, as compared to $12.9 million, or 24.5% of net sales, in the same quarter of the prior year. For the six months ended January 31, 2012, engineering and product development expenses were $25.3 million or 43.7% of net sales, compared to $25.9 million or 20.2% of net sales for the six months ended January 31, 2011.

Selling, general and administrative expenses. Selling, general and administrative expenses were $8.3 million, or 34.6% of net sales, in the three months ended January 31, 2012, as compared to $12.7 million, or 24.2% of net sales, in the same quarter of the prior year. For the six months ended January 31, 2012, selling, general and administrative expenses were $17.7 million or 30.6% of net sales as compared to $25.9 million or 20.2% of net sales for the six months ended January 31, 2011. The decrease in selling, general, and administrative expenses, on a dollar basis, for the three and six months ended January 31, 2012 as compared to the same periods ending January 31, 2011, was primarily driven by a decrease in variable expenses that are tied to revenue and net income such as commissions and profit share expense as a result of aforementioned decrease in revenue in profits. Also, the three and six month periods ending January 31, 2011 included merger-related fees that did not recur in the three and six months ending January 31, 2012.

Amortization of purchased intangible assets. Amortization associated with intangible assets acquired from Credence was $0.8 million or 3.3% of net sales for the three months ended January 31, 2012 as compared to $1.5 million or 2.8% of net sales for the same quarter of the prior year. For the six months ended January 31, 2011, amortization associated with these assets was $1.6 million or 2.7% of net sales as compared to $3.0 million or 2.3% of net sales for the six months ended January 31, 2011. The underlying intangible assets relate to acquired technology and customer and distributor relationships. These intangible assets acquired in the Credence merger are being amortized over their estimated useful lives of between one and nine years based on their expected pattern of use.

Restructuring. Restructuring expense was $0.1 million for the three months ended January 31, 2012 and $0.2 million for the six months ended January 31, 2012, as compared to $0.1 million for the same periods ending January 31, 2011. The expense recorded during the three months ended January 31, 2012, related to severance for headcount reductions, lease termination costs and remaining lease payments resulting from the closing of a North American facility.

Interest expense. Interest expense was less than $0.1 million for the three months ended January 31, 2012 and 2011, respectively. For the six months ended January 31, 2012, interest expense was less than $0.1 million compared to $0.1 million for the same period in 2011. Interest expense is composed of accretion for the difference between the net present value and the estimated future value of our facility restructuring liability.

Investment income. Investment income was $0.2 million and $0.4 million for the three and six months ended January 31, 2012, as compared to less than $0.1 million and $0.2 million for the three and six months ended January 31, 2011. Investment income continues to be minimal, due to low interest rates available in the current financial markets.

Net benefit from income taxes. We recorded an income tax benefit of ($0.7) million for the three months ended January 31, 2012, as compared to a benefit of ($0.1) million recorded for the three months ended January 31, 2011. The benefits were primarily due to the release of income tax reserves due to statute of limitation expirations.

As of January 31, 2012 and July 31, 2011, the total liability for unrecognized income tax benefits was $8.6 million and $9.1 million, respectively, (of which $4.9 million and $5.3 million, if recognized, would impact our income tax rate and are recorded in other long-term liabilities on our consolidated balance sheets).

We expect to maintain a full valuation allowance on United States deferred tax assets until we can sustain an appropriate level of profitability to ensure utilization of existing assets. Until such time, we would not expect to recognize any significant tax benefits in our results of operations.

Net income (loss). Net loss was $9.7 million, or $(0.20) per basic and diluted share, in the three months ended January 31, 2012, as compared to net income of $4.7 million, or $0.10 per basic share and $0.09 per diluted share, in the same quarter of the prior year. For the six months ended January 31, 2012, our net loss was $14.6 million, or $(0.30) per basic and diluted share, as compared to net income of $24.4 million or $0.49 per basic and diluted share for the six months ended January 31, 2011 as a result of the aforementioned decrease in revenue and profits.

Liquidity and Capital Resources

The following is a summary of significant items impacting our liquidity and capital resources for the six months ending January 31, 2012 (in millions):


Cash, cash equivalents and marketable securities at July 31, 2011	$	162.6
Repurchases of common stock		(6.1	)
Capital expenditures		(1.8	)
Other cash used in operations		(11.0	)

Cash and cash equivalents and marketable securities at January 31, 2012	$	143.7

As of January 31, 2012, we had $143.7 million in cash, cash equivalents and marketable securities and net working capital of $168.3 million, as compared to $162.6 million of cash, cash equivalents and marketable securities and $185.7 million of net working capital at July 31, 2011. The decrease in the cash, cash equivalents and marketable securities was primarily due to repurchases of common stock of $6.1 million for the six months ended January 31, 2012 and other uses of cash in operations.

Accounts receivable from trade customers, net of allowances, was $20.8 million at January 31, 2012, as compared to $42.6 million at July 31, 2011. Accounts receivable decreased in the six months ending January 31, 2012 primarily due to decreasing revenue. The allowance for doubtful accounts was less than $0.1 million, or 0.2% of gross trade accounts receivable, at January 31, 2012 and July 31, 2011.

Accounts receivable from other sources, principally amounts due from vendors, increased to $0.7 million at January 31, 2012, from the July 31, 2011 balance of $0.4 million, primarily due to the timing of and an increase in the number of test systems sold to contract manufacturers in the six months ending January 31, 2012.

Prepaid expenses and other current assets decreased by $0.8 million to $3.6 million at January 31, 2012 as compared to $4.4 million at July 31, 2011 primarily due to the timing of prepaid insurance premiums and maintenance contract renewals, taxes and value added tax refunds.

As of January 31, 2012, future cash payments related to severance from restructuring actions are $0.1 million and are expected to be paid out within 12 months.

Capital expenditures totaled approximately $1.8 million for the six months ended January 31, 2012, as compared to $3.0 million for the six months ended January 31, 2011. Capital expenditures for the six months ended January 31, 2012 and January 31, 2011 were composed primarily of capital related to certain engineering projects and tester spare parts to support a larger installed base of test equipment.

We had $9.1 million in net cash used in operating activities for the six months ended January 31, 2012, as compared to net cash provided by operating activities of $35.7 million for the six months ended January 31, 2011. The net cash used in operating activities for the six months ended January 31, 2012 was primarily related to our net loss of $14.6 million, offset by non-cash items, principally depreciation and amortization and stock based compensation, of approximately $7.6 million and an increase in working capital of $2.2 million. The net cash provided by operating activities for the six months ended January 31, 2011 was primarily related to our net income of $24.4 million, as adjusted for non-cash items, principally depreciation and amortization and stock based compensation, of approximately $11.7 million, slightly offset by an increase in working capital of $0.4 million.

We had $66.5 million in net cash used in investing activities for the six months ended January 31, 2012 as compared to net cash used in investing activities of $19.6 million for the six months ended January 31, 2011. The net cash used in investing activities for the six months ended January 31, 2012 was primarily related to $81.0 million of purchases of available-for-sale securities and $7.9 million in purchases of held-to-maturity securities, $1.8 million of purchases of property and equipment, offset by $18.4 million of proceeds from sales and maturities of available-for-sale securities and $5.8 million of proceeds from sales and maturities of held-to-maturity securities. Approximately $53.0 million of the $88.9 million of security purchases related to a transfer of money market funds into longer duration marketable securities to take advantage of more favorable investments yields. The net cash used in investing activities for the six months ended January 31, 2011 was primarily related to $13.7 million of purchases of available-for-sale securities and $11.1 million in purchases of held-to-maturity securities, $3.0 million of purchases of property and equipment, offset by $5.0 million of proceeds from sales and maturities of available-for-sale securities and $3.2 million of proceeds from held-to-maturity securities.

We had $6.7 million in net cash used in financing activities for the six months ended January 31, 2012 as compared to net cash used in financing activities of $0.5 million for the six months ended January 31, 2011. The net cash used in financing activities for the six months ended January 31, 2012 was primarily related to the repurchase of our common stock and payments of tax withholdings for vested restricted stock units, offset by proceeds from stock option exercises and shares issued from the employee stock purchase plan. The net cash used in financing activities for the six months ended January 31, 2011 was primarily related to payments of tax withholdings for vested restricted stock units, offset by proceeds from stock option exercises and shares issued from the employee stock purchase plan.

Commitments and Contingencies

Our major outstanding contractual obligations are related to our rental properties and other operating leases and inventory purchase commitments.

The aggregate outstanding amount of our contractual obligations was $45.2 million as of January 31, 2012. These obligations and commitments represent maximum payments based on current operating forecasts. Certain of the commitments could be reduced if changes to our operating forecasts occur in the future.

The following summarizes our contractual obligations as of the date of this filing and the effect such obligations are expected to have on our liquidity and cash flow in future periods:


	Total		2012		2013-2014		2015-2016		Thereafter
	(in thousands)
Contractual Obligations:
Operating leases	$	26,397	$	2,678	$	9,454	$	7,856	$	6,409
Inventory commitments		18,710		18,710		—		—		—
Severance		107		107		—		—		—

Total Contractual Obligations	$	45,214	$	21,495	$	9,454	$	7,856	$	6,409

Off-Balance Sheet Arrangements

As of January 31, 2012 we did not have any off-balance sheet arrangements.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

There has been no material change in our Market Risk exposure since the filing of the 2011 Annual Report on Form 10-K.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of January 31, 2012. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of January 31, 2012, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance levels.

Changes in Internal Controls. There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended January 31, 2012 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls can prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The inherent limitations in all control systems include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we are party to legal proceedings in the course of our business. We do not, however, expect such legal proceedings to have a material adverse effect on our business, financial condition or results of operations.

As previously reported, on April 19, 2011, we received a demand letter pursuant to Massachusetts General Laws ch. 156D, § 7.42 sent on behalf of Joel Krieger, a purported LTX-Credence shareholder, whose putative class action complaint, Krieger v. LTX-Credence Corp., et. al., No. 10-04713, filed on December 3, 2010 in the Superior Court for the Commonwealth of Massachusetts, was dismissed. The letter demanded that we commence legal proceedings against the Company’s directors and senior officers for breaches of their fiduciary duties, gross negligence and mismanagement, waste of corporate assets, and abuse of control, all arising out of our pursuit of a merger transaction with Verigy. On October 12, 2011 the independent members of our Board of Directors determined that pursuing the claims asserted in the demand letter was not in our best interest. In January 2012 counsel to Mr. Krieger informed us that Mr. Krieger would no longer pursue the demand or the claims therein at this time.

Item 1A.

Risk Factors

There have been no material changes to the risk factors previously disclosed in our Annual Report that was filed on Form 10-K for the year ended July 31, 2011. For a discussion of such risks refer to Item 1A, Risk Factors, contained in our 2011 Annual Report on Form 10-K as filed with the SEC on October 14, 2011.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding repurchases of common stock made by us during the quarter ended January 31, 2012:


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number (or Approximately Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
11/1/2011 – 11/30/2011		125,410	$	5.36		125,410	$	19,488,743
12/1/2011 – 12/31/2011		101,300	$	5.58		101,300	$	18,922,781
1/1/2012 – 1/31/2012		—	$	—		—	$	—

Total		226,710	$	5.47		226,710	$	18,922,781

(1)

On September 15, 2011, the board of directors authorized a stock repurchase program, pursuant to which we are authorized to repurchase up to $25 million of our common stock from time to time in open market transactions. The repurchase program may be suspended or discontinued at any time and has no expiration date.

Item 6.

Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index immediately preceding such exhibits, and are incorporated herein by reference.

SIGNATURE

Pursuant to the requirements 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.


	LTX-Credence Corporation

Date: March 9, 2012	By:	/S/ MARK J. GALLENBERGER
		Mark J. Gallenberger
		Chief Financial Officer and Treasurer (Principal Financial Officer)

EXHIBIT INDEX


Exhibit Number		Description

31.1 *		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act

31.2 *		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act

32 *		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350

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

*	Filed herewith

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company