##### 



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 March 31, 2008
 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o (Do not check if a smaller reporting company)
    
    Smaller reporting company 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 March 31, 2008 (unaudited) and September 30, 2007
    
    
    
    
    
    
    3Condensed Consolidated Statements of Net Income (unaudited) for the three and six months ended March 31, 2008 and 2007
    
    
    
    
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended March 31, 2008 and 2007
    
    
    
    
    
    
    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
    
    
    
    
    
    
    16Item 4. Controls and Procedures
    
    
    
    
    
    
    16Part II. Other InformationItem 1. Legal Proceedings
    
    
    
    
    
    
    17Item 1A. Risk Factors
    
    
    
    
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    
    
    
    
    17Item 3. Defaults Upon Senior Securities
    
    
    
    
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    
    
    
    
    18Item 5. Other Information
    
    
    
    
    
    
    18Item 6. Exhibits
    
    
    
    
    
    
    18Signatures
    
    
    
    
    
    
    19Exhibit Index
    
    
    
    
    
    
    20Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350
  2




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##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 EAGLE TEST SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 March 31,
    
    
    September 30,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    45,781
    
    
    $
    10,302Marketable securities
    
    
    31,110
    
    
    
    102,215Accounts receivable, net of allowances of $534 and
$585 as of March 31, 2008 and September 30, 2007,
respectively
    
    
    24,047
    
    
    
    18,238Inventories
    
    
    36,056
    
    
    
    22,233Deferred income taxes
    
    
    4,873
    
    
    
    4,410Prepaid expenses and other current assets
    
    
    1,750
    
    
    
    3,857Total current assets
    
    
    143,617
    
    
    
    161,255Property, plant and equipment, net
    
    
    12,676
    
    
    
    10,782Marketable securities
    
    
    35,858
    
    
    
    Deferred income taxes
    
    
    354
    
    
    
    Other assets
    
    
    562
    
    
    
    533Total assets
    
    $
    193,067
    
    
    $
    172,570LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    13,667
    
    
    $
    6,079Current portion of capital lease obligations
    
    
    265
    
    
    
    270Deferred revenue
    
    
    7,457
    
    
    
    6,441Accrued compensation and related liabilities
    
    
    4,104
    
    
    
    3,357Accrued income taxes
    
    
    173
    
    
    
    416Other accrued expenses
    
    
    3,814
    
    
    
    2,659Total current liabilities
    
    
    29,480
    
    
    
    19,222Long-term liabilities:Capital lease obligations, less current portion
    
    
    36
    
    
    
    124Deferred income taxes
    
    
    
    
    
    
    900Other long-term liabilities
    
    
    438
    
    
    
    434Total long-term liabilities
    
    
    474
    
    
    
    1,458Stockholders equity:Preferred stock, par value $0.01 per share
10,000,000 shares authorized, no shares issued or
outstanding
    
    
    
    
    
    
    Common stock, par value $0.01 per share,
90,000,000 shares authorized, 22,974,177 shares
issued and outstanding
    
    
    230
    
    
    
    230Additional paid in capital
    
    
    175,170
    
    
    
    174,474Accumulated deficit
    
    
    (11,494
    )
    
    
    (22,814
    )Accumulated other comprehensive income (loss)
    
    
    (793
    )
    
    
    Total stockholders equity
    
    
    163,113
    
    
    
    151,890Total liabilities and stockholders equity
    
    $
    193,067
    
    
    $
    172,570
  3




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##### 



EAGLE TEST SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
 (In thousands, except share and per share data)
 Three Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,(unaudited)
    
    
    (unaudited)2008
    
    
    2007
    
    
    2008
    
    
    2007Net revenue
    
    $
    33,134
    
    
    $
    21,308
    
    
    $
    64,134
    
    
    $
    45,344Cost of goods sold
    
    
    12,594
    
    
    
    8,420
    
    
    
    24,533
    
    
    
    18,296Gross profit
    
    
    20,540
    
    
    
    12,888
    
    
    
    39,601
    
    
    
    27,048Operating expensesSelling, general and administrative
    
    
    9,213
    
    
    
    8,668
    
    
    
    18,505
    
    
    
    16,083Research and development
    
    
    3,293
    
    
    
    2,208
    
    
    
    6,202
    
    
    
    4,362Operating income
    
    
    8,034
    
    
    
    2,012
    
    
    
    14,894
    
    
    
    6,603Interest expense
    
    
    3
    
    
    
    235
    
    
    
    8
    
    
    
    251Other (income) and expenseIncome from marketable securities
    
    
    (1,071
    )
    
    
    (1,212
    )
    
    
    (2,219
    )
    
    
    (2,467
    )Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Income before taxes
    
    
    9,102
    
    
    
    2,989
    
    
    
    17,105
    
    
    
    8,828Provision for income taxes
    
    
    3,108
    
    
    
    1,150
    
    
    
    5,785
    
    
    
    3,123Net income
    
    $
    5,994
    
    
    $
    1,839
    
    
    $
    11,320
    
    
    $
    5,705Net income per share, basic and diluted
    
    $
    0.26
    
    
    $
    0.08
    
    
    $
    0.49
    
    
    $
    0.25Weighted average shares outstanding, basic
    
    
    22,974,177
    
    
    
    22,895,803
    
    
    
    22,974,177
    
    
    
    22,864,818Weighted average shares outstanding, diluted
    
    
    23,096,408
    
    
    
    23,122,421
    
    
    
    23,109,083
    
    
    
    23,099,357Comprehensive Income:Net income
    
    $
    5,994
    
    
    $
    1,839
    
    
    $
    11,320
    
    
    $
    5,705Unrealized (loss) on marketable
securities, net of taxes
    
    
    (793
    )
    
    
    
    
    
    
    (793
    )
    
    
    Comprehensive income
    
    $
    5,201
    
    
    $
    1,839
    
    
    $
    10,527
    
    
    $
    5,705
  4




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##### 



EAGLE TEST SYSTEMS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Six Months EndedMarch 31,2008
    
    
    2007(unaudited)Cash flows from operating activities:Net income
    
    $
    11,320
    
    
    $
    5,705Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    1,829
    
    
    
    1,800Gain on sale of property and equipment
    
    
    
    
    
    
    (9
    )Non-cash compensation related to stock options
    
    
    696
    
    
    
    179Excess tax benefits from stock based compensation
    
    
    
    
    
    
    (316
    )Deferred income taxes
    
    
    (1,193
    )
    
    
    (1,949
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,809
    )
    
    
    3,659Inventories
    
    
    (13,780
    )
    
    
    2,538Prepaid expenses and other current assets
    
    
    2,107
    
    
    
    352Other assets
    
    
    (29
    )
    
    
    70Accounts payable
    
    
    7,588
    
    
    
    (2,467
    )Deferred revenue
    
    
    1,016
    
    
    
    (3,888
    )Accrued compensation and related liabilities
    
    
    747
    
    
    
    (2,178
    )Accrued income taxes
    
    
    (243
    )
    
    
    247Other accrued expenses
    
    
    1,155
    
    
    
    (264
    )Other liabilities
    
    
    4
    
    
    
    21Net cash provided by operating activities
    
    
    5,408
    
    
    
    3,500Cash flows from investing activities:Net purchases of marketable securities
    
    
    
    
    
    
    (3,700
    )Net proceeds from the sales of marketable securities
    
    
    33,930
    
    
    
    Sale of property and equipment
    
    
    
    
    
    
    9Capital expenditures
    
    
    (3,766
    )
    
    
    (1,102
    )Net cash provided by (used in) investing activities
    
    
    30,164
    
    
    
    (4,793
    )Cash flows from financing activities:Payments of capital lease obligations
    
    
    (93
    )
    
    
    (111
    )Proceeds from issuance of common stock, net of issuance costs
    
    
    
    
    
    
    34,744Excess tax benefits from stock based compensation
    
    
    
    
    
    
    316Net cash provided by (used in) financing activities
    
    
    (93
    )
    
    
    34,949Net increase in cash and cash equivalents
    
    
    35,479
    
    
    
    33,656Cash and cash equivalents at beginning of period
    
    
    10,302
    
    
    
    51,071Cash and cash equivalents at end of period
    
    $
    45,781
    
    
    $
    84,727Supplemental disclosure:Transfer of equipment from fixed assets to inventory
    
    $
    43
    
    
    $
    506
  5




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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
  6




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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. Marketable Securities
 Accounting for Certain Investments in Debt and Equity Securities
  March 31,
    
    
    September 30,2008
    
    
    2007Short-term marketable securities:Auction rate securities
    
    $
    
    
    
    $
    53,940Variable rate demand notes
    
    
    31,110
    
    
    
    48,275$
    31,110
    
    
    $
    102,215Long-term marketable securities:Auction rate securities
    
    $
    35,858
    
    
    $
    $
    35,858
    
    
    $
    
 4. Inventories
  March 31,
    
    
    September 30,2008
    
    
    2007Raw materials
    
    $
    14,593
    
    
    $
    7,766Work-in-process
    
    
    8,543
    
    
    
    4,499Finished goods
    
    
    10,894
    
    
    
    8,317Inventory at customers under purchase orders
    
    
    2,026
    
    
    
    1,651$
    36,056
    
    
    $
    22,233
  7




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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. Stockholders Equity
 Equity Offerings
  6. Net Income Per Share
   Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 312008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    5,994
    
    
    $
    1,839
    
    
    $
    11,320
    
    
    $
    5,705Basic EPS:Weighted-average common shares outstanding
    
    
    22,974,177
    
    
    
    22,895,803
    
    
    
    22,974,177
    
    
    
    22,864,818Basic net income per common share
    
    $
    0.26
    
    
    $
    0.08
    
    
    $
    0.49
    
    
    $
    0.25Diluted EPS:Weighted-average common shares outstanding
    
    
    22,974,177
    
    
    
    22,895,803
    
    
    
    22,974,177
    
    
    
    22,864,818Plus impact of stock options
    
    
    122,231
    
    
    
    226,618
    
    
    
    134,906
    
    
    
    234,539Diluted common shares
    
    
    23,096,408
    
    
    
    23,122,421
    
    
    
    23,109,083
    
    
    
    23,099,357Diluted EPS
    
    $
    0.26
    
    
    $
    0.08
    
    
    $
    0.49
    
    
    $
    0.25
 7. Other Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 312008
    
    
    2007
    
    
    2008
    
    
    2007Unrealized losses on marketable securities,
net of taxes of $(524) and $0
    
    $
    (793
    )
    
    $
    
    
    
    $
    (793
    )
    
    $
    Other comprehensive income (loss), net of taxes
    
    $
    (793
    )
    
    $
    
    
    
    $
    (793
    )
    
    $
    
 Accounting for
Certain Investments in Debt and Equity Securities
 8




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##### 



EAGLE TEST SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 8. Income Taxes
  Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109,
  9. Commitments and Contingencies
 Contingencies
   Product Warranty
   Product Warranty Activity
 Six Months EndedMarch 31,2008
    
    
    2007Balance at beginning of period
    
    $
    993
    
    
    $
    1,068Warranty expenditures
    
    
    (1,213
    )
    
    
    (1,199
    )Provisions for warranty
    
    
    1,311
    
    
    
    826Balance at end of period
    
    $
    1,091
    
    
    $
    695
 9




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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
       10




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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.
    Marketable Securities
  Inventory Reserves.
  Warranty Reserves.
 11




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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 Months
    
    
    Six MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    38.0
    
    
    
    39.5
    
    
    
    38.3
    
    
    
    40.4Gross profit
    
    
    62.0
    
    
    
    60.5
    
    
    
    61.7
    
    
    
    59.6Operating expensesSelling, general and administrative
    
    
    27.8
    
    
    
    40.7
    
    
    
    28.8
    
    
    
    35.4Research and development
    
    
    9.9
    
    
    
    10.4
    
    
    
    9.7
    
    
    
    9.6Operating income
    
    
    24.3
    
    
    
    9.4
    
    
    
    23.2
    
    
    
    14.6Interest expense
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    0.5Income from marketable securities
    
    
    (3.2
    )
    
    
    (5.7
    )
    
    
    (3.5
    )
    
    
    (5.4
    )Income before taxes
    
    
    27.5
    
    
    
    14.0
    
    
    
    26.7
    
    
    
    19.5Provision for income taxes
    
    
    9.4
    
    
    
    5.4
    
    
    
    9.0
    
    
    
    6.9Net income
    
    
    18.1
    %
    
    
    8.6
    %
    
    
    17.7
    %
    
    
    12.6
    %
  Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 312008
    
    
    2007
    
    
    2008
    
    
    2007United States
    
    $
    9,933
    
    
    
    30.0
    %
    
    $
    11,273
    
    
    
    52.9
    %
    
    $
    19,331
    
    
    
    30.1
    %
    
    $
    22,601
    
    
    
    49.9
    %Malaysia
    
    
    12,909
    
    
    
    38.9
    
    
    
    2,903
    
    
    
    13.6
    
    
    
    23,184
    
    
    
    36.2
    
    
    
    7,898
    
    
    
    17.4Philippines
    
    
    *
    
    
    
    *
    
    
    
    2,401
    
    
    
    11.3
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *Other
    
    
    10,292
    
    
    
    31.1
    
    
    
    4,731
    
    
    
    22.2
    
    
    
    21,619
    
    
    
    33.7
    
    
    
    14,845
    
    
    
    32.7Total
    
    $
    33,134
    
    
    
    100.0
    %
    
    $
    21,308
    
    
    
    100.0
    %
    
    $
    64,134
    
    
    
    100.0
    %
    
    $
    45,344
    
    
    
    100.0
    %
 
 *
    
    Less than 10% of total revenues 12




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##### 



Three Months
    
    Six MonthsEnded
    
    EndedMarch 31,
    
    March 31,2008
    
    2007
    
    2008
    
    2007Allegro MicroSystems, Incorporated
    
    
    *
    %
    
    
    *
    %
    
    
    *
    %
    
    
    10.5
    %Fairchild Semiconductor International, Inc.
    
    
    11.4
    
    
    
    *
    
    
    
    *
    
    
    
    *ON Semiconductor Corporation
    
    
    *
    
    
    
    17.0
    
    
    
    *
    
    
    
    *Texas Instruments Incorporated
    
    
    60.2
    
    
    
    42.6
    
    
    
    53.0
    
    
    
    31.0
 
 *
    
    Less than 10%. Comparison of Three and Six Months Ended March 31, 2008 and 2007
 Net Revenue.
  Gross Profit.
  Selling, General and Administrative.
  Research and Development.
  13




---



##### 



Interest Expense.
  Other Income.
  Provision for Income Taxes.
  14




---



##### 



Liquidity and Capital Resources
    Accounting for Certain Investments in Debt and Equity Securities
 15




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##### 



Item 3.Quantitative and Qualitative Disclosures about Market Risk
     
 Item 4.Controls and Procedures
   16




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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 March 31, 2008, we
retained approximately $23.6 million of these net proceeds, none of
which were used during the three month period ended March 31, 2008. 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
 17




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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
  18




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SIGNATURES
  EAGLE TEST SYSTEMS, INC.Date: May 2, 2008
    By:
    /s/ Leonard A. FoxmanLeonard A. FoxmanChief Executive Officer and President 19




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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.
 20