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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2007
 OR
 o
    
    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 000-51828
 EAGLE TEST SYSTEMS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    36-2917389(State of incorporation)
    
    (I.R.S. Employer Identification No.)2200 Millbrook Drive, Buffalo Grove, Illinois
    
    60089(Address of principal executive offices)
    
    (Zip Code)
 (847) 367-8282
 þ o
  o þ o
 o þ




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Table of Contents  EAGLE TEST SYSTEMS, INC.  (The Company)  INDEX
 PagePart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of December 31, 2007 (unaudited) and September 30, 2007
    
    
    3Condensed Consolidated Statements of Net Income (unaudited) for the three months ended December
31, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended December
31, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15Part II. Other InformationItem 1. Legal Proceedings
    
    
    16Item 1A. Risk Factors
    
    
    16Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 3. Defaults Upon Senior Securities
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17Item 5. Other Information
    
    
    17Item 6. Exhibits
    
    
    17Signatures
    
    
    18Exhibit Index
    
    
    19Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350CertificationCertificationCertification
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 EAGLE TEST SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 December 31,
    
    
    September 30,2007
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    17,192
    
    
    $
    10,302Marketable securities
    
    
    97,820
    
    
    
    102,215Accounts receivable, net of allowances of $596 and $585
    
    
    23,976
    
    
    
    18,238Inventories
    
    
    26,265
    
    
    
    22,233Deferred income taxes
    
    
    5,016
    
    
    
    4,410Prepaid expenses and other current assets
    
    
    1,371
    
    
    
    3,857Total current assets
    
    
    171,640
    
    
    
    161,255Property, plant and equipment, net
    
    
    10,844
    
    
    
    10,782Other assets
    
    
    542
    
    
    
    533Total assets
    
    $
    183,026
    
    
    $
    172,570LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    8,676
    
    
    $
    6,079Current portion of capital lease obligations
    
    
    269
    
    
    
    270Deferred revenue
    
    
    7,739
    
    
    
    6,441Accrued compensation and related liabilities
    
    
    3,171
    
    
    
    3,357Accrued income taxes
    
    
    1,574
    
    
    
    416Other accrued expenses
    
    
    2,773
    
    
    
    2,659Total current liabilities
    
    
    24,202
    
    
    
    19,222Long-term liabilities:Capital lease obligations, less current portion
    
    
    56
    
    
    
    124Deferred income taxes
    
    
    825
    
    
    
    900Other long-term liabilities
    
    
    437
    
    
    
    434Total long-term liabilities
    
    
    1,318
    
    
    
    1,458Stockholders equity:Preferred stock, par value $0.01 per share 10,000,000
shares authorized, no shares issued or outstanding as
of December 31, 2007 and September 30, 2007
    
    
    
    
    
    
    Common stock, par value $0.01 per share, 90,000,000
shares authorized, 22,974,177 shares issued and
outstanding as of December 31, 2007 and September 30,
2007
    
    
    230
    
    
    
    230Additional paid in capital
    
    
    174,764
    
    
    
    174,474Accumulated deficit
    
    
    (17,488
    )
    
    
    (22,814
    )Total stockholders equity
    
    
    157,506
    
    
    
    151,890Total liabilities and stockholders equity
    
    $
    183,026
    
    
    $
    172,570
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EAGLE TEST SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
 (In thousands, except share and per share data)
 Three MonthsEnded December 31,(unaudited)2007
    
    
    2006Net revenue
    
    $
    31,000
    
    
    $
    24,036Cost of goods sold
    
    
    11,939
    
    
    
    9,877Gross profit
    
    
    19,061
    
    
    
    14,159Operating expensesSelling, general and administrative
    
    
    9,292
    
    
    
    7,414Research and development
    
    
    2,909
    
    
    
    2,154Operating income
    
    
    6,860
    
    
    
    4,591Interest expense
    
    
    6
    
    
    
    16Other (income) and expenseIncome from marketable securities
    
    
    (1,148
    )
    
    
    (1,254
    )Other income
    
    
    
    
    
    
    (9
    )Income before taxes
    
    
    8,002
    
    
    
    5,838Provision for income taxes
    
    
    2,676
    
    
    
    1,972Net income
    
    $
    5,326
    
    
    $
    3,866Net income per share, basic and diluted
    
    $
    0.23
    
    
    $
    0.17Weighted average shares outstanding, basic
    
    
    22,974,177
    
    
    
    22,834,508Weighted average shares outstanding, diluted
    
    
    23,121,758
    
    
    
    23,096,885
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EAGLE TEST SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Three Months EndedDecember 31,2007
    
    
    2006(unaudited)Cash flows from operating activities:Net income
    
    $
    5,326
    
    
    $
    3,866Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    912
    
    
    
    909Gain on sale of property and equipment
    
    
    
    
    
    
    (9
    )Non-cash compensation related to stock options
    
    
    290
    
    
    
    5Deferred income taxes
    
    
    (681
    )
    
    
    (432
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,738
    )
    
    
    6,205Inventories
    
    
    (4,032
    )
    
    
    564Prepaid expenses and other current assets
    
    
    2,486
    
    
    
    943Other assets
    
    
    (9
    )
    
    
    44Accounts payable
    
    
    2,597
    
    
    
    (1,574
    )Deferred revenue
    
    
    1,298
    
    
    
    (5,921
    )Accrued compensation and related liabilities
    
    
    (186
    )
    
    
    (2,977
    )Accrued income taxes
    
    
    1,158
    
    
    
    328Other accrued expenses
    
    
    114
    
    
    
    (761
    )Other liabilities
    
    
    3
    
    
    
    17Net cash provided by operating activities
    
    
    3,538
    
    
    
    1,207Cash flows from investing activities:Net purchases of marketable securities
    
    
    
    
    
    
    (3,700
    )Net proceeds from the sales of marketable securities
    
    
    4,395
    
    
    
    Sale of property and equipment
    
    
    
    
    
    
    9Capital expenditures
    
    
    (974
    )
    
    
    (317
    )Net cash provided by (used in) investing activities
    
    
    3,421
    
    
    
    (4,008
    )Cash flows from financing activities:Payments of capital lease obligations
    
    
    (69
    )
    
    
    (64
    )Proceeds from issuance of common stock, net of issuance costs
    
    
    
    
    
    
    34,253Net cash provided by (used in) financing activities
    
    
    (69
    )
    
    
    34,189Net increase in cash and cash equivalents
    
    
    6,890
    
    
    
    31,388Cash and cash equivalents at beginning of period
    
    
    10,302
    
    
    
    51,071Cash and cash equivalents at end of period
    
    $
    17,192
    
    
    $
    82,459
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EAGLE
TEST SYSTEMS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Unaudited)
 1. The Company
  2. Summary of Significant Accounting Policies
 Basis of Presentation
   Preparation of Financial Statements and Use of Estimates
  Stock Options
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EAGLE TEST SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 3. Inventories
  December 31,
    
    
    September 30,2007
    
    
    2007Raw materials
    
    $
    8,374
    
    
    $
    7,766Work-in-process
    
    
    7,514
    
    
    
    4,499Finished goods
    
    
    8,318
    
    
    
    8,317Inventory at customers under purchase orders
    
    
    2,059
    
    
    
    1,651$
    26,265
    
    
    $
    22,233
  4. Stockholders Equity
 Equity Offerings
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EAGLE TEST SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 5. Net Income Per Share
   Three Months EndedDecember 31,2007
    
    
    2006Net income
    
    $
    5,326
    
    
    $
    3,866Basic EPS:Weighted-average common shares outstanding
    
    
    22,974,177
    
    
    
    22,834,508Basic net income per common share
    
    $
    0.23
    
    
    $
    0.17Diluted EPS:Weighted-average common shares outstanding
    
    
    22,974,177
    
    
    
    22,834,508Plus impact of stock options
    
    
    147,581
    
    
    
    262,377Diluted common shares
    
    
    23,121,758
    
    
    
    23,096,885Diluted EPS
    
    $
    0.23
    
    
    $
    0.17
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EAGLE TEST SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 6. Income Taxes
  Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109,
  7. Commitments and Contingencies
 Contingencies
   Product Warranty
   Product Warranty Activity
 Three Months EndedDecember 31,2007
    
    
    2006Balance at beginning of period
    
    $
    993
    
    
    $
    1,068Warranty expenditures
    
    
    (750
    )
    
    
    (587
    )Provisions for warranty
    
    
    748
    
    
    
    268Balance at end of period
    
    $
    991
    
    
    $
    749
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Forward Looking Statements And Projections
 This Quarterly Report on Form 10-Q contains forward looking statements. Forward looking
statements relate to future events or our future financial performance. We generally identify
forward looking statements by terminology such as may, will, should, expects, plans,
anticipates, could, intends, target, projects, contemplates, believes, estimates,
predicts, potential or continue or the negative of these terms or other similar words. These
statements are only predictions. We have based these forward looking statements largely on our
current expectations and projections about future events and financial trends that we believe may
affect our business, results of operations and financial condition. The outcome of the events
described in these forward looking statements is subject to risks, uncertainties and other factors
described in Managements Discussion and Analysis of Financial Condition and Results of
Operations, and elsewhere in this Quarterly Report on Form 10-Q , and in the Risk Factors
contained in the Annual Report on Form 10-K for the period ended September 30, 2007. Accordingly,
you should not rely upon forward looking statements as predictions of future events. We cannot
assure you that the events and circumstances reflected in the forward looking statements will be
achieved or occur, and actual results could differ materially from those projected in the forward
looking statements. The forward looking statements made in this Quarterly Report on Form 10-Q
relate only to events as of the date on which the statements are made. We undertake no obligation
to update any forward looking statement to reflect events or circumstances after the date on which
the statement is made or to reflect the occurrence of unanticipated events.
 Overview
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Critical Accounting Policies and Estimates
   Revenue Recognition.
 
    
    we have a written sales agreement;
    
    delivery has occurred or services have been rendered;
    
    the price is fixed or determinable; and
    
    collectibility is reasonably assured.
    Inventory Reserves.
  Warranty Reserves.
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Allowance for Sales Returns and Uncollectibles.
 Stock-Based Compensation.
 Income Taxes Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109,
 Results of Operations
  Three MonthsEndedDecember 31,2007
    
    2006Net revenue
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    38.5
    
    
    
    41.1Gross profit
    
    
    61.5
    
    
    
    58.9Operating expensesSelling, general and administrative
    
    
    30.0
    
    
    
    30.8Research and development
    
    
    9.4
    
    
    
    9.0Operating income
    
    
    22.1
    
    
    
    19.1Interest expense
    
    
    
    
    
    
    0.1Income from marketable securities
    
    
    (3.7
    )
    
    
    (5.3
    )Income before taxes
    
    
    25.8
    
    
    
    24.3Provision for income taxes
    
    
    8.6
    
    
    
    8.2Net income
    
    
    17.2
    %
    
    
    16.1
    %
  Three Months EndedDecember 31,2007
    
    
    2006United States
    
    $
    9,388
    
    
    
    30.3
    %
    
    $
    11,321
    
    
    
    47.1
    %China
    
    
    3,953
    
    
    
    12.8
    
    
    
    *
    
    
    
    *Malaysia
    
    
    10,290
    
    
    
    33.2
    
    
    
    5,004
    
    
    
    20.8Other
    
    
    7,369
    
    
    
    23.7
    
    
    
    7,711
    
    
    
    32.1Total
    
    $
    31,000
    
    
    
    100.0
    %
    
    $
    24,036
    
    
    
    100.0
    %
 
 *
    
    Less than 10% of total revenues 12




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Three MonthsEndedDecember 31,2007
    
    2006Allegro Microsystems Incorporated
    
    
    *
    %
    
    
    13.3
    %Texas Instruments Incorporated
    
    
    45.5
    
    
    
    20.6
 
 *
    
    Less than 10% of total revenues. Comparison of Three Months Ended December 31, 2007 and 2006
 Net Revenue.
 Gross Profit.
 Selling, General and Administrative.
 Research and Development.
 Interest Expense.
 Other Income.
 Provision for Income Taxes.
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Liquidity and Capital Resources
    14




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
 Item 4. Controls and Procedures
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Part II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    Not applicable.(b)
    
    On March 8, 2006, our registration statement on Form S-1 (Registration
No. 333-130521) was declared effective for our initial public
offering, pursuant to which we offered and sold 6,130,000 shares of
common stock and received net proceeds of approximately $88.7 million.
We used these proceeds to repurchase all of our senior subordinated
notes and to redeem all outstanding shares of our redeemable preferred
stock, and to pay offering related expenses. As of December 31, 2007,
we retained approximately $23.6 million of these net proceeds, none of
which were used during the three month period ended December 31, 2007.
We intend to use the remaining $23.6 million of the net proceeds from
our initial public offering for general corporate purposes, including
working capital and possible acquisitions and investments. We
currently have no agreements or commitments with respect to any
acquisitions or investments and we do not currently have any
acquisitions or investments planned. Pending specific application of
our net proceeds, we plan to invest our net proceeds in government
securities and other short-term, investment-grade, marketable
securities.(c)
    
    Not applicable
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Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  17




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SIGNATURES
  EAGLE TEST SYSTEMS, INC.Date: February 1, 2008
    By:
    /s/ Leonard A. FoxmanLeonard A. FoxmanChief Executive Officer and President 18




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EXHIBIT INDEX
  Exhibit No.
    
    Description31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, by Chief Executive Officer and Chief Financial Officer.
 19